Beginning January 28, 2026, the Thrift Savings Plan (TSP) will finally allow participants to complete Roth conversions—the ability to move money from a traditional (pre-tax) TSP balance into the Roth TSP. For many federal employees, this change has been a long time coming.
Roth conversions (RCs) are widely regarded as one of the most powerful tools in long-term tax planning. Done correctly, they can reduce lifetime taxes, smooth future tax brackets, lower required minimum distributions (RMDs), and create a pool of tax-free assets for both retirees and their heirs.
But there is an uncomfortable truth that deserves more attention:
Roth conversions are easy to execute—but extremely complicated to do correctly.
The danger is not that Roth conversions exist. The danger is that many federal employees will now make them without understanding the math, the trade-offs, or the long-term consequences. In that sense, expanded Roth conversion access may ultimately hurt more people than it helps, simply because of poor execution.
This article explains why Roth conversions require sophisticated analysis, when they tend to work best for federal employees, and why professional planning—not guesswork—is essential.
The Fundamental Roth Conversion Trade-Off
At its core, a Roth conversion is a trade:
- You voluntarily pay taxes today
- In exchange for potentially lower taxes (or no taxes) in the future
That trade can be extraordinarily valuable—but only if it is made at the right time, in the right amounts, and for the right reasons.
Too often, Roth conversions are oversimplified as a binary decision:
“Roth good, traditional bad.”
In reality, Roth conversions exist on a spectrum. The question is almost never whether to convert—it is:
- When
- How much
- At what tax rate
- Under what future assumptions
Required Minimum Distributions: A Silent Driver of Roth Strategy
One of the most important—but often misunderstood—drivers of Roth conversion strategy is the impact of future RMDs.
Under current law, traditional TSP and IRA balances are subject to RMDs beginning at age 73 (and later for younger cohorts). These distributions are fully taxable as ordinary income.
For many federal retirees, RMDs are not merely inconvenient—they are problematic.
When RMDs Become a Tax Problem
RMDs are especially concerning when:
- The projected RMD is significantly higher than actual spending needs
- RMDs push retirees into higher tax brackets
- RMD income causes:
- Higher Medicare premiums (IRMAA)
- Greater taxation of Social Security
- Reduced ACA subsidies (for early retirees)
- Loss of tax credits or deductions
In these cases, Roth conversions before RMD age deserve careful consideration. The goal is not to eliminate taxes—but to reshape when and how taxes are paid.
Lifetime Tax Burden: The Metric That Actually Matters
Many people evaluate Roth conversions by asking:
“How much tax will I pay this year if I convert?”
That question is necessary—but insufficient.
A prudent advisor looks instead at lifetime tax burden:
- Total federal (and state) taxes paid
- Over the retiree’s lifetime
- Under current law assumptions
- Across multiple future scenarios
This requires multi-year projections, not just a tax return.
Why “Convert Everything” Is Usually a Bad Idea
In most cases, the optimal strategy is not to convert all pre-tax assets to Roth.
A well-designed Roth strategy often involves:
- Partial conversions
- Spread across multiple years
- Targeting specific tax brackets
- Coordinated with retirement timing, pensions, and Social Security
The “sweet spot” usually lies somewhere between:
- Doing nothing
- And converting everything
Finding that sweet spot requires modeling—not intuition.
Stress-Testing the Future: Taxes Are Not Static
A truly sophisticated Roth conversion analysis does more than project under current law. It also stress-tests future uncertainty.
This matters because:
- Most economists
- Many policy analysts
- And even former Comptrollers General
Expect higher tax rates in the future, driven by:
- Social Security’s unfunded liabilities
- Medicare’s long-term shortfall
- The aging population (“age wave”)
- Persistent federal deficits
No one knows exactly how taxes will rise—but ignoring the possibility is a planning failure.
A competent advisor will:
- Model Roth strategies under current tax law
- Then rerun projections assuming higher future tax rates
- To assess whether conversions provide resilience against adverse policy changes
The Roth Conversion Timing Window for Federal Employees
For federal employees, there is a common—but narrow—window where Roth conversions often make the most sense: after retirement, but before RMDs begin.
During this period:
- Employment income has stopped
- The FERS pension may be modest
- Social Security may not yet be claimed
- Taxable income is often temporarily lower
This creates a valuable opportunity to:
- Fill lower tax brackets intentionally
- Convert assets at relatively favorable rates
- Reduce future RMD exposure
This window is not guaranteed—and it closes once RMDs begin.
Paying the Tax: A Critical (and Often Mishandled) Detail
One of the most overlooked aspects of Roth conversion planning is how the tax bill is paid.
Bad Strategy
- Paying the conversion tax from:
- The TSP
- A traditional IRA
- Any other qualified account
This reduces the amount converted, increases effective tax cost, and undermines long-term growth.
Better Strategy
- Paying conversion taxes from:
- Cash savings
- After-tax brokerage accounts
- Other already-taxed assets
This allows:
- The full converted amount to remain invested
- The Roth account to compound tax-free
- Maximum long-term benefit from the conversion
The Marginal Tax Rate Trap
Another common misunderstanding is how conversion taxes are calculated. Roth conversions are taxed at the marginal rate, not the average rate. This means:
- The last dollar converted determines the tax cost
- Crossing a tax bracket threshold can materially change results
- Precision matters
This is why professional advisors often use bracket-based strategies.
How Much to Convert: Bracket Bumping vs. Staying Clean
Advisors generally take one of two approaches:
Bracket Bumping
- Convert through the top of a favorable tax bracket
- Intentionally “bump” slightly into the next bracket
- Ensure the lower bracket is fully utilized
This maximizes use of low rates but accepts some higher-rate exposure.
Bracket Containment
- Convert only up to—but not into—the next bracket
- Leave some conversion capacity unused
- Favor rate discipline over full utilization
Neither approach is universally “correct.” The best choice depends on:
- Long-term projections
- Risk tolerance
- Expected future tax regimes
- Estate planning goals
Why Tax Preparers Are Usually Not the Right Resource
Most accountants and tax preparers do excellent work—but their role is often misunderstood.
Tax preparation is largely backward-looking:
- Recording what already happened
- Ensuring compliance
- Minimizing last year’s tax bill
Roth conversion planning is forward-looking:
- Modeling decades into the future
- Evaluating uncertainty
- Making strategic trade-offs
This type of analysis typically falls within the domain of a:
- Fiduciary
- Fee-based financial planner
- Who specializes in tax-aware retirement planning
The True Value of Roth Conversions (It’s Bigger Than You Think)
When done correctly, the value of a Roth conversion strategy can be substantial:
- Often six figures
- Sometimes far more
And that value extends beyond the retiree:
- Roth assets are generally tax-free to heirs
- They reduce inherited tax drag
- They improve intergenerational wealth efficiency
In contrast, a poorly executed Roth conversion can:
- Increase lifetime taxes
- Accelerate Medicare surcharges
- Create unnecessary liquidity strain
- Lock in high-rate tax payments prematurely
The Overlooked Advantage: Roths Eliminate Forced Cash Flow
One final benefit deserves special attention.
Most federal retirees take RMDs and deposit them into:
- Checking accounts
- Savings accounts
- Low-yield vehicles
Often because they don’t need the money. That is a massive missed opportunity.
Roth assets:
- Are not subject to RMDs
- Stay fully invested
- Compound tax-free
- Can remain untouched for life
Under current law, Roth dollars can grow without ever being taxed again.
A Prudent Recommendation
Roth conversions are neither universally good nor universally bad. They are precision instruments, not blunt tools.
The introduction of Roth conversion capability to the TSP is a welcome change—but it also raises the stakes for federal employees.
A carefully designed Roth strategy can deliver extraordinary value. A poorly executed one can permanently lock in avoidable taxes.
For most federal employees, the prudent course is to:
- Engage a fee-based, fiduciary advisor
- Have a comprehensive Roth conversion analysis performed
- Evaluate both current-law and stress-tested scenarios
- Understand why a strategy is recommended—or why no conversion is advised
Even if the conclusion is not to convert, that insight alone can be immensely valuable. When the potential upside is measured in six figures—or more—the return on thoughtful, professional advice is often compelling.
Nigel Valdez is a fee-based fiduciary advisor who specializes in advanced, tax-efficient retirement planning for affluent federal employees. He helps clients optimize federal benefits, manage investment risk, and make informed long-term decisions around strategies such as Roth conversions.
