For federal employees, planning for retirement often comes with unique financial considerations. As 2026 approaches, many are re-evaluating their long-term tax strategies, particularly regarding Thrift Savings Plan (TSP) Roth conversions. The upcoming changes in federal tax brackets and the scheduled expiration of provisions from the Tax Cuts and Jobs Act (TCJA) make 2026 a pivotal year to review whether converting Traditional TSP funds to a Roth TSP is the right move.
Understanding the Basics: Traditional vs. Roth TSP
The Thrift Savings Plan offers two main contribution types: Traditional and Roth. In a Traditional TSP, employees contribute pre-tax dollars, lowering their taxable income in the year of contribution. Withdrawals, however, are taxed as ordinary income during retirement. In contrast, Roth TSP contributions are made with after-tax dollars, allowing for tax-free withdrawals of both contributions and earnings in retirement, provided certain conditions are met.
Given these differences, the decision to convert Traditional TSP funds into a Roth account revolves around one key question: do you anticipate being in a higher tax bracket in the future than you are today? For many federal employees, the answer may change by 2026 as current tax rates are scheduled to revert to pre-2018 levels.
Why 2026 Could Be a Turning Point
The IRS notes that the TCJA lowered federal income tax rates in 2017, but these reduced rates are temporary and set to expire after 2025 unless extended. Once expired, rates will revert to the higher pre-TCJA brackets, potentially increasing the tax burden for many retirees.
This reversion presents an opportunity: if you complete a Roth conversion before the end of 2025, you could lock in today’s lower rates on the converted amount. Waiting until 2026 could mean paying significantly more in taxes for the same conversion.
When Federal Employees Should Consider TSP Roth Conversions
Not every federal employee will benefit from a conversion, but certain scenarios make it more appealing:
- Low-income years or career gaps: If you expect a temporary drop in income—perhaps before retiring or transitioning to part-time work—your current tax bracket may be lower than it will be later in retirement. This creates a window to convert at a reduced tax cost.
- Anticipated tax rate increases: If you believe tax rates will rise in 2026 or beyond, converting now allows you to pay tax at 2025’s lower rates and enjoy tax-free growth afterward.
- Desire for tax diversification: Having both Traditional and Roth accounts provides flexibility in managing taxable income in retirement. Many financial experts recommend tax diversification to help control future tax liability.
- Legacy planning goals: Roth TSP funds are especially attractive for those planning to leave assets to heirs, as withdrawals are tax-free and can continue to grow.
However, a conversion isn’t always ideal. If a large conversion pushes you into a higher tax bracket in the conversion year or impacts other benefits such as Medicare premiums, it may not be worth it. Consulting with a retirement specialist who understands federal benefits is vital before making the decision.
How Roth Conversions Work for TSP Participants
Currently, the TSP itself does not directly allow in-plan Roth conversions. But participants can transfer Traditional TSP funds into a Traditional IRA, and then convert that account to a Roth IRA. Once converted, future growth and withdrawals can be tax-free if rules are met. Because the conversion amount counts as taxable income in the year of conversion, timing and amount are crucial.
United Benefits Retirement Solutions offers guidance tailored to federal employees, helping you calculate the potential tax costs and benefits of converting Traditional TSP assets to Roth accounts. This personalized strategy ensures your decision aligns with your retirement timeline, federal benefits, and other sources of income such as your FERS or CSRS pension.
Evaluating the Tax Impact
According to Congressional Budget Office data, federal revenues from individual income taxes are projected to increase sharply after 2025 if current laws remain unchanged. This means that unless Congress acts to extend the TCJA cuts, taxpayers across income levels could see higher effective rates. For federal employees, converting before those rates return may mean substantial tax savings.
Additionally, Federal Retirement Net highlights that federal retirees typically withdraw TSP funds during a period when pensions and Social Security also generate income, possibly placing them into higher marginal brackets than they expected. A strategic Roth conversion before 2026 can reduce the percentage of taxable income later, offering greater control over distributions and tax planning throughout retirement.
Balancing TSP Conversions with Other Benefits
Federal employees often face complex benefit structures, including FERS/CSRS annuities, Social Security coordination, FEHB coverage, and survivor benefits. Each influences the retirement income picture. While a Roth conversion affects only your investment account, the resulting taxable income in the conversion year can influence other benefits, such as Medicare premiums, or push part of your Social Security benefits into taxation.
At United Benefits, our team specializes in helping federal employees balance these moving pieces. Our advisors evaluate how a conversion fits into your broader retirement strategy, project tax outcomes using current and future rates, and help you choose the optimal conversion schedule.
Practical Steps to Consider Before 2026
If you believe a conversion could benefit you, it’s wise to start preparing early. Here’s how to approach it:
- Assess your current and projected tax brackets: Determine your current taxable income and compare it against expected income during retirement.
- Estimate conversion costs: Use a tax calculator or professional guidance to project the tax owed on potential conversion amounts.
- Plan conversions in increments: Partial conversions over several years can minimize bracket creep and taxation surprises.
- Review withholding and quarterly payments: Since conversion taxes are due for the year you convert, ensure appropriate withholding adjustments or estimated payments are made.
- Coordinate with your overall benefits plan: Review how TSP, pension, and Social Security interact to ensure your conversion supports—not hurts—long-term cash flow.
Partnering with United Benefits for Strategic Retirement Planning
Roth conversions can offer powerful advantages, but timing and execution are key—especially given the pending tax code changes in 2026. Federal employees have access to distinctive retirement benefits, and no two situations are exactly alike. United Benefits helps federal workers build personalized strategies that incorporate their TSP, FERS or CSRS pensions, survivor benefits, and insurance options.
We encourage you to schedule a consultation to review your specific financial goals and determine whether a Roth conversion makes sense for you before the 2025 tax laws expire. By acting now, you can position yourself for greater tax efficiency and long-term security.
Contact United Benefits:
Phone: 866-558-2121
Email / Address: 3295 County Road 47, Florence, AL 35630
Website: https://unitedbenefits.com/
At United Benefits, we’re committed to helping federal employees navigate complex financial decisions with confidence. With the right strategy, your TSP Roth conversion could become one of the most impactful steps toward a secure and tax-efficient retirement in 2026 and beyond.