Interest in TSP Roth conversions has grown quickly since federal employees gained the ability to complete in-plan conversions in early 2026. The strategy allows participants to move money from a Traditional TSP to a Roth TSP without leaving the plan, potentially creating tax-free qualified withdrawals later in retirement.
The option has already proven popular. Since becoming available on January 28, 2026, nearly 31,000 conversions totaling roughly $684 million have been completed.
While the long-term tax advantages can be appealing, there’s one important rule that every federal employee should understand before converting any portion of their account.
A Roth Conversion Triggers Taxes Immediately
Money contributed to a Traditional TSP generally hasn’t been taxed yet. When those funds are converted to a Roth TSP, the amount converted is treated as taxable income for that calendar year.
In other words, you’re paying taxes now in exchange for the possibility of tax-free qualified withdrawals in retirement.
That tradeoff can make sense in many situations, but it also means your tax bill could increase significantly for the year of the conversion.
You Can’t Use Your TSP to Pay the Taxes
One of the most commonly misunderstood aspects of a TSP Roth conversion is how the taxes are paid.
Unlike some retirement account transactions, the tax liability created by an in-plan Roth conversion cannot be satisfied using money from your TSP account. Instead, you’ll need to pay those taxes using cash from savings or another non-retirement source.
If you don’t have funds available to cover the tax bill, a Roth conversion may not be the most practical move, even if the long-term strategy appears attractive.
An Example
Assume you decide to convert $50,000 from your Traditional TSP while you’re in the 22% federal income tax bracket.
That conversion would add $50,000 to your taxable income for the year and could result in approximately $11,000 in federal income taxes. If your state taxes retirement income, your total tax obligation could be even higher.
Timing Can Make a Big Difference
How much you convert is only part of the equation. The timing of the conversion can have just as much impact.
Completing a large conversion while you’re still earning a full federal salary could push more of your income into a higher tax bracket. It may also affect your future Medicare costs, since Medicare’s Income-Related Monthly Adjustment Amount (IRMAA) is based on your income from two years earlier.
Because of that, many retirees look at the period after leaving federal service but before required minimum distributions (RMDs) begin. Those years often provide greater flexibility because taxable income may be lower, allowing conversions to be spread over multiple years while potentially reducing the overall tax impact.
Is a Roth Conversion the Right Move?
A TSP Roth conversion can be an effective tax-planning tool, but there isn’t a one-size-fits-all answer.
Before converting, it’s worth evaluating several factors, including:
- Your current and expected future tax brackets.
- Whether you have cash available to pay the taxes.
- How the conversion could affect Medicare IRMAA premiums.
- Your anticipated retirement income.
- How the conversion fits into your broader retirement income strategy.
For some federal employees, paying taxes today may result in meaningful tax savings later. For others, keeping assets in a Traditional TSP may prove to be the more efficient choice.
Frequently Asked Questions
Do I owe taxes on a TSP Roth conversion?
Yes. The amount converted from a Traditional TSP to a Roth TSP is generally included in your taxable income for the year of the conversion.
Can I use money from my TSP to pay the taxes?
No. Taxes generated by an in-plan Roth conversion must be paid with money from outside your TSP account.
When is the ideal time to complete a Roth conversion?
Many federal employees find that the years after retirement but before required minimum distributions begin offer an attractive opportunity because taxable income is often lower. However, the best timing depends on your individual financial situation.
Will a Roth conversion affect my Medicare premiums?
It can. Because a Roth conversion increases your taxable income, a large conversion could increase your Medicare IRMAA surcharge if your income exceeds the applicable thresholds.
