Should I Do a Roth Conversion in My TSP? What You Need to Know Before Converting

Roth conversions have become one of the most talked about tax planning strategies in recent years and for good reason. When used correctly, they can create decades of tax free growth and add meaningful flexibility to a long term financial plan.

At the same time, Roth conversions are one of the most misunderstood strategies we see. A new rule change inside the Thrift Savings Plan is likely to increase both interest and confusion.

Beginning January 28, 2026, TSP participants will be able to complete internal Roth conversions directly inside their TSP account. This change makes Roth conversions easier than ever. It also makes thoughtful planning more important than ever.

Before deciding whether this is a good move for you, it helps to start with the basics.

What Is a Roth Conversion?

A Roth conversion is the process of moving money from a pre tax retirement account, such as a Traditional TSP, into a Roth account.

The tradeoff is simple.

You pay income taxes today on the amount converted. In return, those dollars can grow tax free and be withdrawn tax free later, assuming the Roth rules are met.

Unlike pre tax retirement accounts, Roth accounts are not subject to required minimum distributions during your lifetime. That flexibility can be extremely valuable when managing income and taxes in retirement.

One critical detail often gets overlooked.

A Roth conversion is a taxable event. Every dollar converted is added to your taxable income for that year.

Why Would Someone Consider a Roth Conversion?

Roth conversions are not about avoiding taxes altogether. They are about choosing when you pay taxes.

Some of the most common reasons people consider Roth conversions include:

• Locking in lower tax rates during lower income years
• Creating tax free income later to better manage retirement tax brackets
• Reducing future required minimum distributions
• Increasing flexibility when coordinating pensions, Social Security, and portfolio withdrawals

When timed intentionally, Roth conversions can reduce lifetime taxes and improve long term cash flow in retirement.

Why Timing Matters More Than the Strategy Itself

The single most important factor in deciding whether a Roth conversion makes sense is your current income level and tax bracket.

Roth conversions tend to work best during periods such as:

• Early career years
• Gaps between jobs or career transitions
• Sabbaticals or unpaid leave
• Temporary dips in income
• Early retirement years before Social Security or pension income begins

During these windows, it may be possible to convert pre tax dollars at relatively low tax rates and allow those funds to compound tax free for decades.

That same conversion can look very different if done during peak earning years.

What Is Changing Inside the TSP in 2026

Starting January 28, 2026, the TSP will allow participants to complete Roth in plan conversions, meaning eligible Traditional TSP balances can be converted to Roth without rolling money out of the plan.

Before this change, Roth conversions generally required rolling funds into a Roth IRA or waiting until separation from service. The new rule adds flexibility and simplifies the process.

It does not eliminate the tax consequences.

Converted amounts will still be taxable in the year of conversion, and taxes are not automatically withheld. Planning for how the tax bill will be paid is a key part of the decision.

Why We Urge Caution Before Converting

Because this process is becoming easier, we are concerned many people will convert without fully understanding the long term consequences.

We strongly caution against completing a Roth conversion without first consulting a financial or tax professional.

We often see situations where someone contributed to a Traditional TSP early in their career at relatively low tax rates, only to consider converting those dollars later while earning their highest income. In those cases, the individual may permanently give up dollars by paying significantly higher taxes than they ever would have owed otherwise.

Once a Roth conversion is completed, it cannot be undone. Taxes paid today are taxes paid forever.

Roth conversions can be powerful. They can also be irreversible mistakes when done without proper analysis.

A Hampton Roads Perspective

Our team is located in Hampton Roads, home to one of the largest concentrations of military personnel and federal employees in the country. With major installations and federal agencies throughout the region, questions about TSP planning and Roth conversions come up frequently.

What we see consistently is this: Roth conversions can be incredibly effective when coordinated with income, timing, and long term goals. They can be surprisingly costly when done in isolation.

The Bottom Line

The new Roth conversion option inside the TSP is a meaningful improvement and a valuable planning tool for many federal employees.

It is not a decision to rush. The goal is not simply tax free money someday. The goal is paying the least amount of tax over your lifetime while maintaining flexibility and control.

That is where thoughtful, professional planning makes all the difference.

This article is for educational purposes only and is not intended as tax, legal, or investment advice. Roth conversions and tax strategies are highly individual and depend on your specific financial situation. You should consult with a qualified financial advisor or tax professional before implementing any strategy discussed above.