TL;DR: This guide explains how the Roth TSP works, how it compares to other retirement accounts, and what federal employees should consider before converting traditional TSP funds. It also covers tax rules, retirement timing, and strategies for maximizing long-term savings.
Readers will learn:
- The key differences between a Roth IRA, traditional TSP, and Roth TSP, including taxes, RMDs, and investment options.
- How the Roth TSP offers tax-free withdrawals and protection against future tax increases.
- Why the 2026 tax changes may make Roth conversions more expensive—and how to plan ahead.
- The step-by-step process for converting TSP funds to a Roth IRA (since direct TSP-to-Roth conversions aren’t allowed).
- When a Roth TSP or Roth conversion makes sense based on income, tax brackets, and retirement goals.
The thrift savings plan (TSP) supports federal employees and members of the uniformed services. It serves as a retirement savings plan, much like the 401k plan offered by private employers. The TSP permits individuals to contribute pre-tax funds. Your money grows tax-deferred until you withdraw it. At that point, withdrawals become taxable income.
Many people now explore a TSP Roth conversion because Roth balances offer tax-free withdrawals in retirement.
The Protecting Public Safety Employees Timely Retirement Act lets eligible law enforcement and public safety officers make penalty-free withdrawals from their TSP accounts.
They can withdraw from their TSP without penalties after completing 25 years of service or turning 50. Now, law enforcement officers eligible for retirement before turning 50 are exempt from the 10% early withdrawal penalty.
A Roth IRA uses after-tax income. It offers tax-free earnings when basic conditions are met. This benefit motivates many workers to explore Roth options inside or outside the TSP.
Roth IRA vs Thrift Savings Plan
When considering a Roth IRA vs. a thrift savings plan, you need to consider your tax situation and needs.
Consider the Tax Implications
A Roth IRA is advantageous if you anticipate being in a higher tax bracket during your retirement years. Conversely, suppose you are presently in a high tax bracket but expect to transition into a lower one after retirement. In that case, adhering to a traditional thrift savings plan may be the more sensible choice.
Putting yourself in a higher tax bracket could potentially hurt your social security benefits. This is why you must be careful before you pursue a thrift savings plan Roth conversion.
Required Minimum Distributions
One of the advantages of Roth IRAs is that they are not subject to required minimum distributions (RMDs). Thrift savings plans and traditional IRAs are. This flexibility allows you to keep your funds in the account, so they grow tax-free for an extended period according to your preference.
Investment Options
Thrift savings plans have limited investment options compared to the broader range available in a Roth IRA. If you desire greater control over your investments, converting to a Roth IRA is better for you.
However, Roth IRAs usually have higher fees because of this. Make sure you compare before deciding. Working with a financial advisor can help you make the right choice.
FERS Protections
Thrift savings plans are protected by the Federal Employees Retirement System Act, which grants protections from creditors. This is a valuable shield against potential financial risks.
Your hard-earned savings remain protected, giving you peace of mind and ensuring a secure future. This protection does not extend to private retirement accounts.
Thrift Savings Plan Roth Option
If you are mainly interested in the tax-free withdrawals of a Roth IRA, consider the thrift savings plan Roth option.
The Roth TSP lets you change future contributions from traditional to Roth status, so you pay taxes now instead of later. You cannot convert past contributions inside the TSP, because the plan does not support an internal Roth TSP conversion. You can use the Roth TSP if you want more control over future taxes. The Roth TSP works well for savers who expect higher income in retirement or want tax-free distributions later.
If you are younger than 59 1/2 years old, limited options exist for converting funds from a traditional thrift savings plan to a Roth. However, if you have either separated from service or are above the age of 59 1/2, this is a viable option for you.
A financial planner can explain how the Roth TSP fits into your long-term tax strategy and whether it supports your retirement goals.
Traditional TSP vs Roth TSP
A traditional TSP and a Roth TSP offer different tax advantages. Understanding traditional tsp vs roth tsp rules helps you choose the best option for your retirement plan.
- Taxes: You contribute pre-tax income to a traditional TSP, so you get a tax break today. You pay taxes when you withdraw the money. With a Roth TSP, You contribute after-tax income, pay taxes today and enjoy tax free withdrawals in retirement.
- RMDs: Traditional TSP accounts require RMDs. The Roth TSP avoids TSP minimum required distribution rules, giving you more long-term flexibility.
Benefits of a Roth TSP
The benefits of Roth TSP accounts attract many federal employees who want predictable tax planning. Key benefits include:
- Tax-free withdrawals when you follow IRS rules
- No tsp minimum required distribution, allowing more tax-free growth
- Protection against higher future tax brackets
- Better long-term planning by locking in today’s tax rate
- More predictable retirement income because taxes are already paid
What Does the TSP Roth Conversion 2026 Tax Change Mean?
The TSP Roth Conversion 2026 deadline matters because Tax Cuts and Jobs Act rates expire after 2025. Tax brackets may rise in 2026, which can make Roth conversions more expensive. Converting TSP funds now lets you lock in today’s lower tax rates.
Partial conversions across several years can help you avoid jumping into a higher tax bracket. A staggered approach also reduces the tax impact of moving money from tax-deferred to tax-free accounts.
Reviewing your expected future tax bracket helps you decide when to convert. A financial planner can help you create a conversion timeline based on income, retirement goals, and tax projections.
How to Convert a Thrift Savings Plan to a Roth IRA
The thrift savings plan does not allow for Roth IRA conversions. Instead, this needs to be a two-stage process. You must first transfer funds to a traditional IRA, then convert your that account to a Roth IRA.
Step 1: Transfer Your TSP to a Traditional IRA
Move your TSP balance into a traditional IRA. This step keeps the transfer tax-deferred. Make sure the transfer goes directly from the TSP to the IRA custodian to avoid penalties. Mishandling transfers may trigger penalties.
Step 2: Convert the Traditional IRA to a Roth IRA
Convert the traditional IRA to a Roth IRA. You must pay taxes on the amount you convert. Track how the conversion affects your current-year tax bracket.
Step 3: Spread Conversions Over Years
While it may be tempting to convert all your money during a thrift savings plan Roth conversion, remember that the money you convert is still subject to taxation. It is best if you make your Roth conversions over a span of several years.
You can do this with a Roth conversion ladder.
Tip: It is better if you make this thrift saving plan Roth conversion earlier to accommodate the five-year rule for Roth conversions. That will give you the greatest tax advantage by reducing your tax bill over several years.
A thrift savings plan Roth conversion like this may be subject to penalties and fees if you handle this process incorrectly. And nobody wants to bear the burden of excessive taxes.
Step 4: Work with a Financial Planner
Fiduciary financial planners and tax professionals possess a wealth of knowledge and experience when it comes to retirement planning and tax laws. They help you avoid costly mistakes and build a plan that fits your goals.
They review your tax brackets, retirement income, estate plans, and long-term needs. Their guidance helps you make informed decisions based on your risk tolerance, estate planning objectives, and financial situation.
Get the Financial Help You Need
As fiduciaries, our financial planners are ethically bound to act in your best interests. This means the team at Asset Preservation Wealth and Tax must recommend what we believe is the best course of action for your personal financial situation. This can give you peace of mind and confidence in our advice.
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A Roth conversion may not be suitable for your situation. The primary goal in converting retirement assets into a Roth IRA is to reduce the future tax liability on the distributions you take in retirement, or on the distributions of your beneficiaries. The information provided is to help you determine whether or not a Roth IRA conversion may be appropriate for your particular circumstances. Please review your retirement savings, tax, and legacy planning strategies with your legal/tax advisor to be sure a Roth IRA conversion fits into your planning strategies.
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.
