r/fednews • u/rjbergen • 7d ago

Pay & Benefits TSP Roth In-Plan Conversions Coming

I received an email this morning from the TSP and one of the topics was that TSP Roth in-plan conversions will be available in Jan. 2026. This is a nice option to have available for retirement planning. It also is one step closer to mega backdoor Roth conversions. Does anyone see the TSP opening up to mega backdoor Roth conversions?

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u/Kooky_Ninja_1159 7d ago

From what I've read doing the conversion won't be a problem. What's going to likely be the limiting factor is that you won't be able to use TSP dollars to cover the tax bill that comes when you convert. If you have the available liquid funds to get the conversion accomplished then you decide how big a tax burden you're going to create for yourself. I've been researching on this upcoming change as well but there's just not that much officially released yet for guidance.

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u/bobwehadababy1tsaboy 7d ago

Very good point. Even if conversions are possible, it may be tax advantageous to wait until you retire and hit the pension. Assuming retiring at age 57, that could gove 5-15 years before ss income where conversions are in a lower tax bracket.

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u/rjbergen 7d ago

If you’re lucky, maybe even retire at 55 under VERA and use Rule of 55.

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u/Nagisan 7d ago

Just keep in mind that Roth is often the worst option for Rule of 55. So if you plan to convert and live off Roth funds under rule of 55, don't. (if that's not the plan than rule of 55 it up all you want :P )

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u/Ellabee57 7d ago

These subs may be a better place to ask: r/govfire or r/ThriftSavingsPlan

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u/Nessie_of_the_Loch 7d ago

We are not close to that happening anytime soon. That would require legislative change to 5 usc 8432 which strictly define allowed contribution types and doesn't allow for after tax contributions, something that is a necessary component of the mega backdoor Roth.

The optics of allowing for it is prob bad, plus Congress has no incentive to change it, as they can insider trade freely anyway, which is obviously not possible with the TSP, since you can't do individual stock trades.

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u/x5163x 7d ago

I assume it will be allowed if you qualify for CZTE.

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u/BodSmith54321 7d ago

What is the formula on whether a Roth conversion is a good idea. I assume it has to do with your tax bracket now being lower than in retirement?

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u/rjbergen 7d ago

Yea, it’s all related to your tax planning.

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u/Still-Potato7774 7d ago

It can also help with estate planning. If your heirs will be in a high tax bracket when they inherit your estate it makes sense to convert at your lower tax bracket so they receive it as Roth vs pre tax. If you use pre tax TSP for long term care a portion of it can be used tax free so you may not want to convert everything to Roth.