What changed in January 2026
The SECURE 2.0 Act authorized in-plan Roth conversions for defined-contribution plans, and TSP implemented them beginning in January 2026. Before this, federal employees could only choose Roth TSP for new contributions — they could not convert existing Traditional balances. Now, for the first time, federal employees can restructure the tax treatment of money already in TSP.
This matters most for employees who have spent years or decades building a large Traditional TSP balance and are now concerned about their tax burden in retirement — particularly the combination of pension income, Social Security, and RMDs all arriving simultaneously in their 70s.
The core math: when Roth wins
A Roth conversion is a bet on tax rates. You pay taxes now at your current rate; in exchange, all future growth is tax-free. The conversion is worth it if your expected retirement federal rate exceeds your current combined rate (federal plus state).
Formally: Roth wins when rₐₑₐₐirement > rₐow + rₐtate. If you currently pay 22% federal and 5% state (27% combined) and expect to retire in the 22% federal bracket, Traditional is better — you’d be paying 27% today to avoid 22% later. If you expect your retirement rate to hit 28% due to pension plus Social Security plus RMDs, the conversion pays off.
The RMD factor
Beyond the pure tax-rate math, Roth TSP has a structural advantage: as of SECURE 2.0, Roth TSP accounts are not subject to required minimum distributions while the account holder is alive. Traditional TSP requires distributions starting at age 73, which creates taxable income whether you need the money or not. For federal retirees who already have substantial pension income, forced RMDs can push them into higher brackets and affect IRMAA surcharges on Medicare.
This RMD benefit is not captured in the calculator above — it makes the Roth conversion even more attractive than the numbers suggest for employees with large Traditional balances who do not plan to spend down TSP early in retirement.
Partial conversions and bracket management
You do not have to convert everything at once. A common strategy is to convert just enough each year to fill up your current bracket — for example, converting Traditional TSP to Roth up to the top of the 22% bracket, then stopping before crossing into 24%. This spreads the tax cost over multiple years and avoids triggering a large single-year tax bill.
Be aware that the conversion amount is added to your ordinary income for the year and can also affect IRMAA thresholds (which determine Medicare Part B and D surcharges two years later), the taxation of Social Security benefits, and state income tax. Consult a tax advisor before converting a large amount.
Pay the tax bill from outside TSP
When TSP processes your conversion, it will withhold 20% for federal taxes by default. If you allow the withholding, less money ends up in Roth and you lose the full benefit. The better approach: opt out of withholding and pay the tax bill yourself from a savings or checking account. This keeps the full converted amount invested in Roth and maximizes the long-term advantage. The calculator above assumes you pay taxes externally — if you will use TSP withholding, the net benefit will be lower.