The TSP ROTH Conversion

Federal Benefit Advisory

Understanding the Regulations:

First, understand if you are looking to convert your Traditional TSP into a ROTH, regulations say you cannot do so and remain in the TSP. TSP says that is a No No. If you do want to convert, then you must transfer your traditional TSP out of the TSP program. Next, you will have to find a location to put it, meaning one that will allow, first, the conversion to occur, secondly, will it be worth any risk, cost, or lack of earning.

  • Bank:  The banks, certainly secure, where savings for retirement could pay a reasonable 5% or 6% return. Safety of principal and live the rest of your life fishing or playing golf. Those days are gone. The safety remains, but the rate of return is nil or next to nil.
  • Brokerage: The offer of stocks, bonds or mutual funds is tempting as we see and hear of so many wealthy persons who made it in the market. Now, unless you are a master investment strategist, you will give up control totally to your brokerage rep.  Just like the TSP, most all investments carry an inherent risk.
  • Annuities:  Like the bank, these instruments have a risk-free protection, can provide a good return and guaranteed income. Your risk, you will never make a killing on the market, as your broker may promise, you will contract for a period of years, and know what you need in a retirement income, with thousands of choices, a wrong choice here can be hurtful. Choose your advisor wisely and ask questions to guide you in search of your needs. The right choice can bring restful nights of sleep in your retirement years.
  • Risk, although we all understand can reduce principal, should be consider as part of cost, along with fees and commissions.

Now, let’s suppose you find the right place, the next question is how much of your IRA (formerly TSP) do you wish to convert?  Some? All?

Some pointers:

  1. Remember, this is a taxable event.
    1. Adding to your income are every dollar moved to ROTH.
    2. Be aware of your current tax bracket, and what bracket this transaction will put you in.
  2. Consider the break-even factor.  This could be years, or decades.
  3. Once you know the BREAKEVEN POINT (is it worth it?)
    1. $100k, $200k, $300k might be more cost effective, $400K and more breakeven is questionable.
  4. Take all the time needed with your trusted advisor, look at ALL possibilities.
    1. The ratio of tax for modest conversions and tax cost vs higher balance ratio, is not equal.
    2. High balance conversions should always be considered over time, even decades.
  5. If Tax Free income is your motive, consider also, other means of tax free, while assessing risk.

Share this article:


Upcoming Tele-Seminars

Thursday, June 27th
Noon – 12:45 p.m.


Thursday, July 11th
Noon – 12:45 p.m.


Order your custom retirement report

Our free “14-page report” will illustrate your stand-alone & combined Pension, Social Security and TSP options & other income for any age & time you select.

We're here to help you retire comfortably and securely. Partner with us to prepare for your future.

Connect with a Federal Employee Benefit Planner

Scroll to Top