Beginning January 1, 2026, federal employees will have the option to perform in-plan TSP Roth conversions. This means you can transfer money directly from your Traditional TSP into a Roth TSP. If you don’t already have a Roth account, your first conversion will automatically establish one.
Since contributions to the Traditional TSP were made pre-tax, any converted amount is treated as taxable income in the year of conversion. To keep from bumping yourself into a higher tax bracket, many people choose to convert smaller amounts during lower-income years or spread conversions across several years.
Laddering Conversions
A Roth conversion ladder involves moving smaller amounts into a Roth TSP each year rather than all at once. Each year’s conversion has a five-year clock before earnings can be withdrawn penalty-free. By stacking these conversions annually, you create a timeline of “rungs” that become available in succession, helping balance tax costs with access to funds.
Why RMDs Matter
Traditional TSP balances are subject to Required Minimum Distributions (RMDs) starting at age 73 or 75, depending on your birth year. Withdrawals are taxable, and when combined with your FERS annuity and Social Security, they can easily push you into a higher tax bracket. This can erode more of your nest egg than expected.
The Roth Advantage
Roth TSP balances are exempt from RMDs. While you’ll pay taxes upfront on the converted amount, all future growth and qualified withdrawals are tax-free. This upfront cost often makes Roth conversions attractive as a long-term tax strategy compared to leaving funds in a traditional account.
Plan Ahead
Without a strategy, conversions and withdrawals can lead to larger-than-expected tax bills. Identifying the right years to convert—often when income is lower—can help smooth out taxes and protect more of your retirement income.
Not sure if a Roth conversion fits your plan? A Federal Retirement Consultant (FRC®) can analyze your benefits and recommend a tailored strategy.
