TSP Roth Conversions: Should You Do It?

My general guidance for federal employees

The TSP has opened the gates for Roth conversions, and everybody seems to be talking about them. You’re probably wondering: “Should I be doing this too?”

The entire decision boils down to two questions:

• Will you, or your surviving spouse, or your heirs be in a higher tax bracket in the future (relative to your tax bracket at the time of conversion)?
• Where will the tax money come from? Meaning, since Roth conversions trigger a tax, which funds will you tap to pay the tax? It’s one of two choices. It’ll either come from:
  • within the converted funds
  • an outside account (ideally low-yielding, like cash or savings)

The chart below lays out my general guidance. I explain my thinking in the article that follows.

The Decision Chart

The Mechanics: What a Roth Conversion Actually Does

• Your Traditional TSP or Traditional IRA holds money you have not yet paid taxes on.
• If you convert any amount to Roth, that amount is treated as income earned that year. Convert $100,000, and it’s as if you earned an extra $100,000 that year, and you will owe federal tax, plus state tax (if your state taxes income) on that amount.
• The tax due will either be paid from within the converted amount, or from an outside account.

  For example, if you convert $100,000, you may owe 24% federal tax + 6% state tax = 30% tax! 30% of $100,000 is $30,000. Where is that $30,000 coming from? If you pay it from within the converted funds, you will actually only end up with $70,000 going into the Roth. The other $30,000 went to taxes.

  Alternatively, you can have the entire $100,000 converted to Roth, but you will need to pay the $30,000 from outside funds.

• A TSP conversion will need to have the taxes paid by an outside account. Meaning, the TSP doesn’t give you a choice where to pay the taxes from. You cannot have the taxes withheld from the converted amount. This is actually a good thing!
• Careful that your converted amount doesn’t bump you into higher brackets. For example, convert $1,000,000 in one year and — congratulations! — you’ve pushed yourself into the highest possible bracket. NEVER DO THAT! Convert in measured annual pieces to prevent over-taxation.

When a Roth Conversion Doesn’t Work — and Why

Case 1: Same tax rates, tax paid from within the converted amount — Don’t!

This is the top-left cell of the chart, and it surprises many people, so let’s settle it with numbers. You’re in the 24% bracket today and expect to be in the 24% bracket in retirement. You convert $100,000 and carve out $24,000 for the tax, so only $76,000 enters the Roth. Over 20 years at 7%:

• Identical to the dollar. Same rates in, same rates out, tax paid from within = a mathematical wash. If you have no outside money to pay the tax with, and your bracket isn’t changing, this conversation is a non-starter. You did paperwork for nothing.

Case 2: Your future tax rate will be lower — Wait!

• If you’re working today in the 24% bracket but your income will drop into the 22% bracket in your first retirement years, converting now locks in the higher rate. Don’t convert now in the 24%. Wait until you drop into the 22% and then convert.

When a Roth Conversion Does Work — and Why

Case 1: Same tax rates, tax paid from outside money — Convert!

Same setup as before — 24% now, 24% later — but this time you convert the full $100,000 and pay the $24,000 from your bank account. That money was earning 1% in checking, not the 7% your TSP is positioned for. You’ve used low-performing dollars to buy tax-free growth on high-performing dollars:

• Good news: the TSP only offers this method. It converts the full amount and withholds nothing — every TSP conversion is automatically structured the right way, provided the outside cash is ready.

Case 2: Your future tax rate will be higher — Best Case Scenario!

Many people assume retirement means a lower bracket. Sometimes it does, perhaps for a few years. But then required minimum distributions arrive:

• Born 1960 or later: RMDs begin at age 75. Born 1951–1959: age 73.
• RMDs apply to traditional TSP and traditional IRAs. Roth TSP and Roth IRAs have no RMDs at all.
• Having $100,000+ RMDs is very realistic for many people. Withdrawals of that size may propel you into higher tax brackets.

Example: A federal couple, $1,500,000 in TSP at retirement

• They retire at 62. Pension plus the taxable portion of Social Security: $150,000 per year. After the $32,200 standard deduction (2026), taxable income is $117,800 — the 22% bracket. (For simplicity, these examples ignore the extra deductions available at 65 and older.)
• They don’t touch the TSP. It grows at 7% per year. By age 75 it reaches $3,614,768.
• The IRS divides that balance by 24.6 (the age-75 factor). Their first RMD:

$3,614,768 ÷ 24.6 = $146,942 — required, whether they want it or not

• The takeaway: the RMD raised their tax bracket. And there’s a good chance their balance keeps growing, so every year’s RMD is larger than the last, pushing them steadily higher in the 24% bracket.
• The strategy: convert during the thirteen-year window between retirement and RMDs, filling up the 22% bracket deliberately (about $93,600 of room per year in this example). Every dollar converted avoids the 24% bracket, and also shrinks the balance the future RMD is calculated on.

The Surviving Spouse Consideration

Here is something that almost never gets discussed until it’s too late:

• In the year a spouse passes, the survivor may still file jointly. Starting the next year, they file single.
• Single-filer brackets are roughly half the width of married brackets. The single 32% bracket starts at $201,776 of taxable income (2026); for couples it starts at $403,551.
• The RMD does not shrink. It’s calculated on the same account balance, but now it lands on a single return with a smaller standard deduction.

Example: The same couple — after the first spouse passes

• Income drops to $110,000. You’d think lower income would cause the taxes to go down. However, they still have to take the $146,942 RMD, and it lands on a single return:

• Fixed income went down — and yet the tax bracket went up.
• The takeaway: in this case, converting while both spouses are alive and in the 22% bracket (or less) can spare the surviving spouse from being bumped into a higher bracket.
• The strategy: same as above – convert during the thirteen-year window between retirement and RMDs, filling up the 22% bracket deliberately (about $93,600 of room per year in this example). Every dollar converted avoids the future 24% married bracket and the 32% single bracket the survivor may face later. (In fact, even after RMDs begin, there’s still justification to continue converting at 24% while you’re both alive (about $138,800 of room per year in this example), since paying 24% now beats paying 32% on a single return.)

The 10-Year Rule for Heirs

When a non-spouse heir — your children, for example — inherits your TSP:

• They cannot keep the money in the TSP. It moves to an inherited IRA.
• Under the SECURE Act, the account must be fully emptied within 10 years of your death. The old “stretch” provision is gone.
• What they should do inside that 10-year window depends entirely on which kind of account you left them.

Example: Your child inherits $2,000,000

Your child and their spouse earn $200,000 per year — taxable income of $167,800, the 22% bracket. If you pass and leave them your $2,000,000 traditional account, here are the likely outcomes:

• Outcome A — Let it grow, liquidate in year 10. The balance grows at 7% to $3,934,303 — and the entire amount is taxable in a single year. Stacked on their salary, virtually all of it is taxed in the 37% bracket. (This option assumes you passed away before your own RMDs began. If you had already started RMDs, your heir will need to take annual distributions in years 1–9.)
• Outcome B — Withdraw evenly across the 10 years. The level annual withdrawal that empties the account (while the remaining balance keeps growing at 7%) is $284,755 per year. Added to their income, taxable income becomes $452,555 — pinned in the 32% bracket for a full decade. That’s less tax than Outcome A, but still a heavy bill year after year.

However, had you left them $2,000,000 in a Roth account, here’s what can happen:

• Outcome C — The Roth path. Let it sit untouched for the full 10 years. It grows to the same $3,934,303. They liquidate in year 10 and owe zero tax!

• The takeaway: with a traditional account, every path is unpleasant — a 37% lump, or a decade pinned at 32%. With a Roth, the best path is obvious, easy, and tax-free. Your kids will thank you for the Roth. So, quite possibly, will your spouse.

When to Convert: The Window and the Dip

• The window: the early retirement years — after your salary stops, before RMDs begin. Your bracket is temporarily at its lowest. That’s when measured annual conversions cost the least.
• The dip: if a market downturn depresses your balance, that’s an opportune moment — you convert at a lower value and the recovery happens inside the Roth, tax-free. No predictions, no guarantees. Have your plan, and the outside cash for the tax, ready now, so if the moment arrives, you can act quickly.

The Bottom Line

• If your future rate — including RMDs, the surviving-spouse cliff, and your heirs’ brackets — will be higher than today’s: convert, in measured annual amounts.
• If your rates will be equal but you can pay the tax from underperforming outside money: convert.
• If your income is about to drop: wait for the window, then convert.
• If you have no outside money and no bracket advantage: don’t.

All of this can be forecasted. I help my clients project their future RMDs, their future tax brackets, and what will be left to their spouse and heirs — and based on that information, we make an educated decision about whether, when, and how much to convert.

If you’d like help thinking through the calculations, or you’d like to get your Roth accounts in position, request a one-on-one consultation with me and my team. I work with federal employees just like you, and I’d be happy to discuss Roth conversions, your TSP, or anything else in your overall financial plan.

Frequently Asked Questions

Does the TSP withhold taxes when I do a Roth conversion?

No. The TSP converts the entire amount you choose and withholds nothing. You will owe the tax when you file — federal, and state where applicable — so make sure you have funds available in an outside account.

At what age do RMDs begin?

If you were born in 1960 or later, age 75. If you were born 1951–1959, age 73. Roth TSP and Roth IRA accounts have no RMDs at all.

Can my withdrawals before RMD age absolve me of my RMD when I reach RMD age?

No. Each year’s RMD is calculated fresh: your account balance on December 31 of the prior year, divided by that year’s IRS life-expectancy factor. Withdrawing early doesn’t absolve you from future RMDs. But early withdrawals and conversions do shrink the balance of your account. A smaller balance means a smaller required distribution, every year thereafter.

Can I convert my RMD?

No. Each year’s RMD must be taken before any amount can be converted — the RMD itself can never be converted to Roth.

Can my kids keep inherited money in the TSP?

No. A non-spouse beneficiary must transfer TSP money into an inherited IRA and liquidate it within ten years. A surviving spouse, by contrast, can keep the money in a TSP beneficiary account. However, when the surviving spouse passes away, there can be a big tax problem. See this article, point #14.

Can I have a Roth TSP if I already have a Roth IRA?

Yes, 100%. The Roth TSP is not dependent on whether you hold a Roth IRA, and it has no income limits.

Do Roth conversions affect Medicare premiums (IRMAA)?

Yes, they can. Medicare premiums are based on your income from two years earlier, so conversions from about age 63 onward can raise your Part B and Part D premiums. That said, many federal employees I work with rely on FEHB rather than Medicare Part B, which changes the calculus considerably.

When is the best time to do Roth conversions?

For most of my clients: the early years of retirement, after income drops and before RMDs begin — and ideally paying the tax from an underperforming outside account so the full converted amount grows tax-free.

Do State taxes impact the conversion math?

Absolutely! If you are planning on moving to a lower-tax state, there may be grounds for delaying the conversion until you move. Or, if you are planning a move to a higher-tax state, that may be grounds to start the conversions sooner!

All these points should be discussed with your advisor.