A significant new feature is coming to the Thrift Savings Plan (TSP) that will offer federal employees a powerful new tool for managing their retirement savings and tax future. The TSP is preparing to allow in-plan conversions from a traditional, pre-tax account to a Roth account, as detailed by FEDweek. This is a game-changing development that provides a new layer of flexibility and strategic control over your long-term financial plan.
The Power of a Roth Conversion
Historically, if a federal employee wanted to convert their traditional TSP balance to a Roth, they had to transfer the money out of the TSP into a private sector IRA. The new in-plan conversion feature will allow you to move your money from your traditional TSP balance to your Roth TSP balance directly within the plan. When you make this conversion, you will pay income tax on the converted amount in the year of the conversion. In exchange, all future qualified withdrawals of that money from your Roth TSP will be completely tax-free.
This is a powerful strategy, especially in the current financial landscape. The number of Roth accounts, both in the TSP and the private sector, has been steadily growing. According to the Investment Company Institute, total assets in Roth IRAs have surged in recent years, reflecting a growing awareness among savers about the benefits of tax-free retirement income. For federal employees, this new feature means you can now take advantage of this strategy without ever having to leave the low-cost structure of the TSP.
This new tool is particularly relevant for federal employees who expect to be in a similar or higher tax bracket in retirement. Paying the taxes now, while you are still working, could save you a significant amount of money in the long run when you are drawing down your retirement income.
Why Expert Guidance is Crucial
While the new Roth conversion feature offers incredible potential, it is not a one-size-fits-all solution. A conversion is an irrevocable decision with significant immediate tax consequences. Deciding if and when to convert, and how much to convert, requires a careful analysis of your current and projected future income, your overall tax situation, and your long-term financial goals.
This is where the specialized expertise of Internal Benefit Advisors becomes an essential asset. They are dedicated to educating federal and state employees on the intricacies of their benefits, helping them navigate complex decisions like a Roth conversion with confidence.
Here’s how they empower you to make the right choice:
- Comprehensive Retirement and Tax Analysis: They can provide a complete analysis of your FERS/CSRS pension, TSP, and Social Security benefits to project your future income and potential tax liabilities. This is the critical first step in determining if a Roth conversion is right for you.
- Strategic Conversion Planning: They work with you to create a smart conversion strategy. This could involve converting a portion of your TSP over several years to manage the tax impact, a strategy known as a “Roth conversion ladder.”
- Empowerment Through Education: The world of retirement planning and taxes is complex. Internal Benefit Advisors provides the clear, unbiased education you need to understand the pros and cons of a Roth conversion and make a confident, proactive decision for your financial well-being.
The addition of in-plan Roth conversions is one of the most significant enhancements to the TSP in years. It’s an opportunity you can’t afford to ignore.
Take the definitive step to see if this powerful new tool is right for you. Contact Internal Benefit Advisors today for a consultation and build the tax-efficient, secure retirement your years of service have earned.
References
- FEDweek. “TSP Adds Detail to Upcoming Roth Conversion Feature.”
- Investment Company Institute. (2025). Retirement Assets Totaled $38.4 Trillion in Fourth Quarter 2024.
- Thrift Savings Plan. Roth TSP Contributions.
- Internal Benefit Advisors. Retrieved from https://internalbenefitadvisors.com
