Retirement Planning

How Does a Thrift Savings Plan Roth Conversion Work?

Stewart Willis

The thrift savings plan (TSP) is accessible to 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. 

Contributions can then grow until you make a withdrawal. At this point, withdrawals become taxable income. However, some may consider a thrift savings plan Roth conversion for tax-free withdrawals.

Under the Protecting Public Safety Employees Timely Retirement Act, law enforcement and public safety officers who meet the eligibility criteria can make penalty-free withdrawals from their TSP accounts. 

This can be done once they have completed 25 years of service in a covered retirement plan or reach the age of 50, whichever comes first. Now, law enforcement officers eligible for retirement before turning 50 are exempt from the 10% early withdrawal penalty.

A Roth IRA is an individual retirement account that is funded with income that has already been subjected to taxes. The primary benefit of a Roth IRA is that any earnings and withdrawals are generally exempt from taxation as long as specific criteria are fulfilled.

There are many reasons you might want to make this conversion.

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 making a decision. 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.

Couple checking financial documents

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 thrift savings plan allows you to modify the tax status of your contributions from a traditional to a Roth thrift savings plan.

Unfortunately, the thrift savings plan Roth conversion does not permit retroactive modifications. It is not possible to alter the funds you have already allocated from the traditional tax-deferred tax status to the Roth status.

You can convert your tax-deferred contributions to the thrift savings plan Roth option through your online account. 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.

If you are unsure if this thrift savings plan Roth conversion is appropriate for your needs, then seek advice from a certified financial planner.

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. 

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. 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. Remember that you don't have to convert everything all at once. 

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.

Fiduciary financial planners and tax professionals possess a wealth of knowledge and experience when it comes to retirement planning and tax laws. Their understanding of retirement accounts, tax implications, and regulations is extensive. With their expertise, you can confidently navigate the complexities and make informed decisions to maximize your benefits while avoiding costly mistakes.

Remember, your financial situation is unique. Relying on a fiduciary is crucial if you want tailored advice that aligns with your unique circumstances, goals, and risk tolerance. 

By taking into account factors such as your current and future tax brackets, anticipated retirement expenses, other sources of retirement income, and estate planning objectives, they can offer comprehensive guidance that serves your best interests.

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 and search by our firm name or by our CRD # 175083.

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