Blog / Retirement Planning
Before You Convert Your TSP to Roth, Can You Cover the Tax Bill?
Every fall our Wednesday webinar fills with the same question: should I convert my TSP to Roth before the year ends? The answer starts with a simpler one. If you convert, where does the tax money come from?
How a TSP in-plan Roth conversion works in 2026
The TSP opened in-plan Roth conversions on January 28, 2026. You log into My Account at tsp.gov, choose an amount from your traditional balance, and it moves into your Roth TSP balance. The converted amount is added to your taxable income for the year.
- No withholding. The TSP cannot withhold federal or state tax from an in-plan conversion. You pay from your own cash.
- $500 minimum per conversion, and up to 26 conversions per calendar year. Each one is a separate request.
- Irreversible. Once a conversion processes, it cannot be undone.
“We've had people do it and say, I wish I never did that, because now I have to take my personal cash and pay the taxes.” — William Smith Jr.
If you have a healthy emergency fund sitting in the bank, this is easy. Most of the federal families we talk to don't. Their wealth is in the TSP, which is exactly why they need a conversion plan.
The workaround after you retire: convert from an outside IRA
Once you have separated from service, you can move part of your traditional TSP to a traditional IRA and convert from there. Most IRA custodians let you withhold the tax from the conversion itself. On a $100,000 conversion at a 20% rate, about $80,000 lands in the Roth and $20,000 goes to the IRS and your state. Nothing comes out of your checking account.
We have a married couple, both federal employees, with more than $2.5 million between their TSPs and very little cash. Converting inside the TSP would have meant writing large checks every April. Converting through an outside IRA with withholding lets the Roth keep growing without draining their savings.
When to convert: your gap years
For most federal employees, the last year of work is the worst time to convert. Salaries of $120,000 to $150,000 already put you in a higher bracket, and every converted dollar stacks on top. Retirement usually brings the lowest taxable income you have had in decades:
- Your FERS pension is smaller than your salary.
- If you retire before 62, the FERS supplement replaces part of Social Security until 62. Both the pension and the supplement are fully taxable.
- Social Security is never more than 85% taxable, and many states don't tax it at all.
- Required minimum distributions start at 73 or 75 depending on your birth year, and they force taxable withdrawals whether you need the money or not.
The years between retirement and RMDs are the conversion window. How much you convert each year depends on your balance and how much bracket room you have.
The lines to stay under
| Threshold (2026) | Married filing jointly | Why it matters |
|---|---|---|
| IRMAA, first tier | $218,000 MAGI | Above it, each spouse on Medicare pays a Part B and Part D surcharge. Medicare looks back two years, so 2026 conversions affect 2028 premiums. |
| Senior deduction phase-out | $150,000 MAGI | The $6,000-per-person deduction for people 65 and older shrinks above this level ($75,000 for single filers). |
| Social Security taxation | Up to 85% | Conversions raise the income that decides how much of your benefit is taxed. |
Crossing a line is sometimes the right call. Our $2.5 million couple will go over IRMAA in some years because the long-term tax savings are larger than the surcharge. For a household with $500,000, staying under usually wins. That is a case-by-case decision.
Why the bracket matters so much
In one case from our retirement analyzer, converting $200,000 while in the 24% bracket cost about $56,000 in combined tax. The same $200,000, converted in retirement on a $50,000 base income, cost about $24,000. Same dollars, different year.
Who gets hurt by doing nothing
Two people inherit your tax problem. A surviving spouse moves from married-filing-jointly to single brackets, which are narrower, so the same RMD can jump from the 22% to the 32% bracket. Your children face the 10-year rule: an inherited $1 million TSP must be emptied within ten years, often while they are in their own peak earning years. Every dollar you convert at a lower rate is a dollar they inherit tax-free.
If you are still working
- Contribute to the Roth TSP through your payroll system. In 2026 you can put in $24,500, plus an $8,000 catch-up at 50 or older, or an $11,250 catch-up at ages 60 to 63.
- Open a Roth IRA, even with a small deposit. Roth IRA earnings are only tax-free after the account has been open five years, so start the clock now. The 2026 IRA limit is $7,500, or $8,600 at 50 and older.
- Hold big conversions until your income drops.
Where this fits in the Financial House
We build every plan as a house. The foundation is protected money for emergencies and the income you need. The walls are tax strategy, and Roth conversions are the main tool here. The roof is growth money. Because your FERS pension covers much of your income, you can usually keep more of your TSP invested for growth than a private-sector retiree could.
Questions from the live audience
Do I have to pay the Roth conversion tax out of pocket with the TSP?
Yes for in-plan conversions. The TSP cannot withhold tax from a Roth in-plan conversion, so you pay the federal and state tax from other funds when you file.
Is it smart to do Roth conversions while I'm still working?
Usually not in your highest-earning years, because converted dollars are taxed at your top bracket. Raising Roth TSP contributions is often the better move until your income drops in retirement.
How much tax will I owe on a TSP Roth conversion?
It depends on your effective tax rate, which depends on your pension, Social Security, other income, deductions and state. We review your prior-year return, and our CPA can confirm the right conversion amount.
Should I open a Roth IRA if I already have a Roth TSP?
Opening one starts the five-year clock for tax-free Roth IRA earnings. Most people should still put most of their Roth savings into the Roth TSP, because its limit is far higher.
Are RMDs only a TSP rule?
No. RMDs apply to tax-deferred money in the TSP and traditional IRAs. They start at 73 if you were born 1951–1959 and at 75 if you were born in 1960 or later.
Your numbers, not an example
See what this looks like for your TSP and pension.
The first call is free. We gather your service date, salary, TSP balance and goals, then show you where the gaps are.
Schedule A MeetingFed Legacy is an independent financial services firm helping federal employees create retirement strategies using a variety of insurance products. Any reference to protection benefits, safety, security, steady and reliable income, or lifetime income streams refers only to fixed insurance products. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities may be subject to fees, surrender charges and holding periods, and are not FDIC insured. This content is educational and is not tax or legal advice. Fed Legacy is not affiliated with OPM, the FRTIB or any federal agency.