For years, federal employees who wanted to convert pre-tax savings to Roth had to leave the TSP to do it. They rolled money to an IRA and converted it there. That changed in January 2026, when the TSP rolled out in-plan Roth conversions.
Roughly 60,000 participants have already used it. That’s a big number for a brand-new feature, and it tells you something: a lot of feds are thinking hard about taxes in retirement.
But a conversion that’s right for your coworker can be an expensive mistake for you. And the clock matters. A conversion has to be completed by December 31 to count on your 2026 tax return. Here’s what you need to know before you decide.
How a TSP Roth conversion works
A Roth conversion moves money from your traditional (pre-tax) TSP balance into your Roth TSP balance. You pay income tax on the converted amount now. In exchange, that money and its future growth can come out tax-free later, as long as you meet the Roth rules.
A few mechanics trip people up:
- The TSP does not withhold taxes on the conversion. The full amount moves to Roth, and the tax bill lands on your return. You’ll need to pay it from cash outside the TSP, ideally through extra paycheck withholding or an estimated tax payment.
- The converted amount is ordinary income. It stacks on top of your salary, pension and any other income for the year. Convert too much and you can jump into a higher bracket.
- Conversions can’t be undone. Once it’s processed, there’s no recharacterizing it back to traditional.
- The five-year rule still applies. Roth earnings come out tax-free only after you’re 59½ and the five-year holding requirement is met. Check tsp.gov for how the TSP tracks the clock on converted money before you count on early access.
- Roth TSP has no required minimum distributions. Since 2024, Roth balances in the TSP are exempt from RMDs, which makes converted dollars more flexible later.
Timing matters too. Requests take time to process, so don’t wait until the last week of December. Aim to have your conversion submitted by early December.
When a conversion can make sense
The core question is simple: is your tax rate lower today than it will be when you take the money out? If yes, converting can save you money over your lifetime. Feds who often fit that profile include:
- Recent retirees in the “gap years.” If you retired before 62 and haven’t started Social Security, your income may be lower now than it will ever be again. These years are often the best window for conversions.
- Feds with large traditional TSP balances. A big pre-tax balance means big RMDs starting at age 73 (or 75 if you were born in 1960 or later). Stack those on top of a FERS pension and Social Security, and many retirees land in a higher bracket than they had while working.
- Anyone with room left in their current bracket. Converting just enough to “fill up” the 12% or 22% bracket can be a low-cost way to chip away at future taxes.
- Married feds thinking about the survivor. When one spouse dies, the survivor usually files single, with narrower brackets on similar income. Converting while you file jointly can protect the survivor from a higher tax bill later.
- Feds who want to leave tax-free money to heirs. Non-spouse beneficiaries generally have to empty an inherited account within 10 years. Roth money passes to them without the income tax hit.
When you should think twice
A conversion isn’t a free win. It can backfire if:
- You’d pay the tax out of the TSP. Since the TSP doesn’t withhold, you need outside cash. Pulling extra from the TSP to cover the bill shrinks the benefit, and can trigger a 10% penalty if you’re under 59½ and not otherwise exempt.
- You’re in your peak earning years. If your salary already puts you in the 24% or 32% bracket and you expect lower income in retirement, converting now may mean paying more tax, not less.
- You’re close to a Medicare cliff. Medicare IRMAA surcharges look back two years. A large conversion at 63 or later can raise your Part B and Part D premiums at 65 and beyond.
- It would cost you a tax break. Higher income can reduce or eliminate benefits like the new senior deduction for those 65 and older, premium tax credits, or other income-tested breaks.
- You’ll need the money soon. Converted dollars and their earnings face Roth timing rules. If you’ll need the cash within a few years, map that out first.
- You plan to give to charity. If your heirs include charities, pre-tax money can go to them tax-free. Converting it first means paying tax nobody needed to pay.
Your year-end checklist
If you’re considering a conversion before December 31, work through these steps:
- Estimate your 2026 taxable income. Include salary or pension, any FERS supplement, Social Security, and other income.
- Find your bracket ceiling. See how much room you have before the next bracket starts.
- Check IRMAA if you’re 63 or older. Make sure the conversion won’t push you over a Medicare surcharge threshold.
- Plan how you’ll pay the tax. Line up outside cash and decide between extra withholding or an estimated payment.
- Submit early. Give the TSP time to process the request before year-end.
- Revisit next year. Many retirees convert in smaller amounts across several years instead of all at once.
The bottom line
Sixty thousand feds converting doesn’t mean you should. The right answer depends on your bracket now, your bracket later, and how you’ll pay the bill. Done well, a series of conversions can lower your lifetime taxes and give you more control in retirement. Done blindly, it can just mean paying tax early.
Want help running the numbers before December 31? Book a Fit Call with our team at Haws Federal Advisors. We’ll look at your TSP, pension and tax picture and show you whether a conversion fits your plan.
This article is for educational purposes only and isn’t tax or investment advice. Talk with a qualified tax professional about your situation before converting.