TSP Roth Conversion: Your Next Big Retirement Move?

Have you heard that TSP Roth conversion finally arrived — and wondered if it’s worth it for your retirement? If you’re a federal or postal employee with a Thrift Savings Plan (TSP) account, this new option lets you move pre-tax money into a Roth (after-tax) bucket inside your TSP — potentially saving you big on taxes later. Let’s break down what it is, how it works, and when it makes sense for you.

What Is a TSP Roth Conversion?

A TSP Roth conversion lets you transfer money from your traditional TSP balance (pre-tax) into your Roth TSP balance (after-tax) inside the TSP plan. This is called an in-plan conversion and it became available as a new TSP feature in 2026.

Here’s the simple part:

• Traditional TSP money hasn’t been taxed yet.

• Roth TSP money is taxed today — but future qualified withdrawals are tax-free.

• When you convert, you pay tax now on the amount you move.

• Once the money is in Roth, it grows tax-free and qualified withdrawals in retirement aren’t taxed.

Why should that matter? Because taxes are one of the biggest retirement expenses. Paying them early can give you more control later. But it also means a bill up front — and that’s what most people worry about.

Why the Change Matters

Before 2026, federal and postal employees who wanted Roth treatment for TSP money had to roll funds out of the TSP to a traditional IRA, then convert to a Roth IRA. That took extra steps, extra cost, and more paperwork. With the new in-plan conversion feature, you can keep everything inside your TSP. That means:

• Lower costs

• Fewer transfers

• No need to manage multiple accounts

• Simpler long-term retirement planning

This is huge for people who like keeping their money in one place.

How a Conversion Works

1. Pick how much you want to convert. You can convert part or all of your traditional balance. There’s a $500 minimum.

2. Taxes hit your income for the year. Whatever you convert gets added to your taxable income. That means you will owe ordinary income tax on it for that tax year — no exceptions.

3. Pay taxes from your own funds. You can’t use your TSP money to pay the tax bill. You need cash from a bank or other non-retirement source.

4. The money stays in your TSP. That’s the part that makes this easier than old methods.

Once the conversion is done, you can’t undo it. That’s why planning is essential.

Pros and Cons — Straight Talk

Pros

• Tax-free growth later: Once Roth money is qualified, you don’t pay tax when you withdraw it in retirement.

• No required minimum distributions (RMDs): Roth balances aren’t forced out at age 73 like traditional ones are.

• Better estate planning: Heirs can take money tax-free in many cases.

• Stay inside TSP: Low fees, simple logistics.

Cons

• Taxes due now: If you convert a lot at once, your income taxes this year could spike. That’s the biggest complaint for most people.

• You must pay taxes from outside funds: You can’t dip into TSP to pay the IRS.

• Once converted, it’s permanent: No take-backs.

That’s why a good rule of thumb is: never convert more than you can afford to pay tax on. It’s not about how much money you have in retirement — it’s about how much extra tax you can responsibly cover today.

When a Roth Conversion Might Make Sense

A TSP Roth conversion can be a smart move for you if:

• You’re younger and early in your career, so money has decades to grow.

• You expect your tax rate to be higher in retirement than today.

• You want tax diversification, so you have both traditional and Roth buckets.

• You have cash outside retirement to pay the taxes now.

• You care about tax-free withdrawals in retirement.

In other words: consider converting only if you have a clear reason — not just because it exists.

When It Might Not Be Worth It

A conversion can make less sense if:

• You’re in a high tax bracket today and don’t expect it to be much higher later.

• You don’t have extra cash to pay the conversion tax.

• You plan to retire soon and won’t benefit from long-term tax-free growth.

If any of those are true for you, it’s okay to wait or keep traditional TSP contributions where they are.

Real Action Steps You Can Take

Here’s your checklist:

1. Review your current tax bracket and expected retirement bracket.

2. Estimate the tax bill on different conversion amounts.

3. Set aside outside funds to pay taxes — don’t eat into retirement to pay Uncle Sam.

4. Talk to a tax professional before making big moves.

5. If you’re already working with a financial advisor, ask them to model outcomes with and without a Roth conversion.

Wrap-Up: Is the TSP Roth Conversion Worth It?

The TSP Roth conversion is a powerful tool. For the right federal or postal employee, it can mean more tax-free income in retirement, no forced distributions, and more control over your retirement dollars. But it’s not a one-size-fits-all solution.

If you understand the tax impact and only convert what you can afford to pay tax on, a Roth conversion inside the TSP can be a solid part of a smart retirement plan.

Want help deciding if a TSP Roth conversion makes sense for your situation? Contact The Benefit Coordinators today for a personalized consultation on retirement benefits and tax planning.