TSP Roth Conversions: How In-Plan Conversions Work, the Break-Even Rule, and the Retirement Window That Makes Them Pay

Data current as of 2026 · In-plan conversions available 2025 · Sources: IRS · TSP · SECURE 2.0

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Model your TSP in-plan Roth conversion: tax cost, future values, and break-even for federal employees.

TSP in-plan Roth conversion, defined: An in-plan conversion moves money from your Traditional TSP balance to your Roth TSP balance without leaving the plan. The converted amount is added to your taxable income in the conversion year; afterward, it grows tax-free and — unlike Traditional dollars — is never subject to required minimum distributions.

Who This Article Is For

• Federal retirees (or near-retirees) with large Traditional TSP balances and a looming RMD problem
• Feds who read our Roth vs. Traditional guide and want the follow-up move for money already contributed
• Employees deciding whether to convert now, in retirement, or never
• Anyone who's heard "always convert" or "never convert" — both are wrong, and the break-even rule says when
• Retirees coordinating conversions around Social Security timing and Medicare premiums

1. What Changed: Conversions Came to the TSP

For most of the TSP's history, getting Traditional TSP money into Roth status meant rolling it out to a Roth IRA — leaving the plan's low costs behind. Beginning in 2025, the TSP supports in-plan Roth conversions: you designate an amount, it moves from your Traditional balance to your Roth balance, and the converted amount lands on that year's tax return as ordinary income.

Three ground rules before any math:

1. The tax is due now. Convert $50,000 in the 22% bracket and you've added $11,000 to this year's federal tax bill (plus state, where applicable).
2. It's irreversible. Recharacterization was abolished in 2017. A conversion in a year that turns out to be high-income cannot be undone.
3. Pay the tax from outside the TSP. If the tax is withheld from the converted amount, less money reaches the Roth side — and for those under 59½, the withheld portion can itself be a taxable early distribution. Every figure in this article assumes taxes paid from external funds, which is also what our Roth Conversion Analyzer assumes.

2. The Break-Even Rule

Strip out the noise and a conversion is the same bet as the Roth-vs-Traditional contribution decision, applied to money you already have:

Convert when your expected tax rate at withdrawal exceeds today's conversion cost rate (federal + state). Skip it when it doesn't.

The formula behind our analyzer makes the stakes concrete. For a conversion of amount V, growing at rate g for n years:

Net benefit = V × (1+g)ⁿ × (withdrawal rate − current federal rate − current state rate)

Everything cancels except that last parenthesis. Growth and time scale the bet; the sign of the bet is purely the rate spread. Convert at 22% to avoid 24% later and you win 2% of the (grown) amount; convert at 24% to avoid 22% and you lose exactly the same way.

3. Worked Examples

Illustrative examples. Constant 6% growth, steady tax law, taxes paid externally — the same model as the Roth Conversion Analyzer. Real brackets move with income and law; these isolate the mechanics. Not tax advice.

Example A — mid-career, modest spread. Convert $50,000 at today's 22% federal (no state), expecting 24% in retirement 15 years out:

A 2-point spread barely clears the bar — which is the honest takeaway for working-years conversions: at peak salary, your current rate is usually too high for the spread to be meaningfully positive.

Example B — the retirement window. A 62-year-old retiree living on her pension delays Social Security and TSP withdrawals. Her taxable income puts her marginal rate at 12%. At 73, RMDs on her large Traditional balance will push her to 24%. She converts $40,000 this year (11 years of growth to 73):

Net benefit = $40,000 × 1.898 × (0.24 − 0.12) = about +$9,100 — from a single year's conversion.

Same mechanics, four-and-a-half times the payoff, because the spread is 12 points instead of 2. Repeat that conversion across each low-bracket year between retirement and 73 and the cumulative benefit compounds — while every converted dollar also shrinks the future RMDs that were creating the 24% problem in the first place.

Example C — the wrong direction. Convert that same $50,000 at a 24% working rate expecting a 22% retirement rate, and the formula runs in reverse: a guaranteed loss of about $2,400 in future dollars. "Never convert at a higher rate than you'll withdraw at" isn't a guideline; it's the arithmetic.

4. Why Federal Retirees Get an Unusually Good Window

The between-retirement-and-RMD window exists for everyone, but the federal benefit structure makes it unusually wide and predictable:

• The pension gives you a known taxable floor. A FERS annuity is steady, computable income — so unlike a portfolio-only retiree, you can calculate exactly how much conversion headroom remains in the 12% or 22% bracket each year.
• The supplement ends and Social Security can wait. If you delay claiming past the supplement cliff at 62, the years before your claim are your lowest-income, highest-headroom years.
• RMDs at 73 are the deadline. Once required distributions begin, they fill your brackets for you — conversion headroom shrinks just as the money is forced out at the higher rate you were trying to avoid. (Roth TSP itself has no RMDs since 2024.)

The strategy in one sentence: each year between retirement and 73, convert enough to fill your current bracket without spilling into the next one — then stop.

5. The Traps

1. The IRMAA lag. Medicare premiums are means-tested against your income from two years prior. A large conversion at 63 can raise your Part B premium at 65 well above the 2026 standard $202.90/month. Conversions near Medicare age need to be sized with IRMAA thresholds in view.
2. Bracket spillover. Converting "a big chunk while I'm retired" instead of "to the top of my bracket" pushes the marginal dollars into exactly the rate you were avoiding. Size each year's conversion to the bracket, not to the balance.
3. Paying tax from the conversion. It shrinks the invested amount and, under 59½, the withheld portion can incur the 10% early-distribution penalty.
4. The five-year clock (for the under-59½). Converted amounts withdrawn within five years, before 59½, can trigger the penalty. Most federal retirees converting after separation at 57+ are past or nearly past this concern — but it's real for early converters.
5. Converting with no spread. If your retirement rate will roughly equal today's, the conversion is roughly a wash — and you've prepaid tax and IRMAA risk for nothing. The break-even rate in the analyzer is exactly this test.

Frequently Asked Questions

Can I convert Traditional TSP to Roth inside the TSP? Yes — in-plan Roth conversions have been available in the TSP since 2025. The converted amount is taxed as ordinary income in the year of conversion.

When does a Roth conversion make sense? When the tax rate you'd pay at withdrawal exceeds the rate you pay to convert (federal plus state). The wider the spread, the larger the benefit; at equal rates it's a wash, and at a negative spread it's a guaranteed loss.

What's the best time for a federal retiree to convert? Usually the years between retirement and RMDs at 73 — especially before claiming Social Security — when taxable income is at its lifetime low and bracket headroom is at its peak.

How much should I convert in a year? A common approach: enough to fill your current tax bracket without crossing into the next one, repeated annually through the low-income window. Converting the whole balance in one year defeats the purpose.

Do Roth conversions affect Medicare premiums? They can. IRMAA surcharges are based on your MAGI from two years earlier, so conversions at 63+ can raise Part B/D premiums later. Size conversions against IRMAA thresholds as well as tax brackets.

Can I undo a conversion? No. Recharacterization was eliminated in 2017. Conversions are permanent, which is why sizing them to the bracket matters.

Should I pay the conversion tax from my TSP? Avoid it if possible. Paying externally keeps the full converted amount growing tax-free; withholding from the conversion shrinks the Roth and can trigger penalties under 59½.

Do conversions reduce my future RMDs? Yes — every dollar converted leaves the Traditional balance that RMDs are computed on, and Roth TSP has no RMDs at all. Shrinking future forced income is often half the point.

Is a TSP conversion different from backdoor Roth? Yes. A backdoor Roth is an IRA contribution maneuver for high earners. An in-plan conversion moves existing pre-tax plan money to Roth status. Unrelated mechanics, similar goal.

The Bottom Line

A Roth conversion is a prepayment of tax at a rate you choose, to avoid a rate you predict. The entire decision is the spread between those two rates — growth and time only raise the stakes. Federal retirees hold an unusually strong hand: a computable pension floor, a supplement-to-Social-Security gap that creates deliberately low-income years, and an RMD deadline that says exactly when the window closes. Convert to the top of the bracket in the low years, respect the IRMAA lag, pay the tax from outside — and skip the whole exercise if the spread isn't there.

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