Roth In‑Plan Conversions: A Quick Guide for Military Families – Part Two

Welcome to part two of this mini-series! We looked at what a Roth conversion was and who can do the conversions. Now, we are going to find out more about questions you should be asking as a military family who wants to convert!

Before You Convert: Four Questions Every Military Family Should Ask

1. What will this do to my taxes this year?

• A conversion increases your taxable income.
• That could:
  • Push you into a higher tax bracket
  • Affect eligibility for certain benefits
  • Trigger estimated tax payments
• You must pay the tax bill out of pocket—you cannot use TSP funds to cover it.

2. Will my tax rate be higher or lower in the future?

• This is the heart of the decision.
• A conversion may make sense if:
  • You’re in a low tax bracket now
  • You expect higher income in retirement (pension + Social Security + withdrawals)
  • You want to reduce future required minimum distributions (RMDs)
• It may not make sense if:
  • You’re currently in a high tax bracket
  • You expect a lower income in retirement
  • You can already contribute directly to Roth TSP through payroll

3. How will this affect my retirement income strategy?

• Military retirees often have multiple income streams:
  • Military pension
  • VA disability
  • Social Security
  • TSP withdrawals
• If you expect your taxable income to be high in retirement, having tax-free Roth money can give you flexibility and help you avoid higher Medicare premiums (IRMAA) and Required Minimum Distributions (RMD).

4. What are my long-term goals for my family?

• A Roth balance can be a powerful legacy tool:
  • Beneficiaries can receive tax-free withdrawals
  • You avoid passing on a tax burden
  • Charitable gifts from Roth funds are tax-efficient
• If your heirs will be in a lower tax bracket than you are today, converting now may cost more than letting them inherit traditional funds.

The Five-Year Rules You Can’t Ignore

• Two separate IRS clocks start ticking when you convert:
  • Five-year rule for Roth earnings
    • Earnings become tax-free only if:
      • Five years have passed since your first Roth contribution or conversion
      • AND you’re age 59½, disabled, or deceased
  • Five-year rule for converted amounts
    • If you withdraw converted funds within five years and you’re under 59½, you may owe a 10% penalty.
    • For military families who move, deploy, and transition frequently, these timelines matter.

So… Should You Convert?

• There’s no one-size-fits-all answer.
• Here’s a simple way to think about it:
  • A Roth in-plan conversion may be a good fit if you:
    • Are in a low tax bracket this year
    • Have cash available to pay the tax bill
    • Expect higher income in retirement
    • Want to reduce future RMDs
    • Want to leave tax-free money to your family
  • It may not be the right move if you:
    • Are currently in a high tax bracket
    • Can already contribute to Roth TSP through payroll
    • Don’t have cash to pay the taxes
    • Expect lower income in retirement
    • Will need the converted money within five years

Final Thoughts for Military Families

Military life brings unique financial opportunities—and unique challenges. A Roth in‑plan conversion can be a powerful tool, but only when used intentionally and with a clear understanding of the tax implications.

If you’re considering a conversion:

• Run the numbers
• Think about your long-term goals
• Consider your retirement income sources
• Talk with a tax professional

A well‑timed conversion can save thousands in taxes over your lifetime—but a poorly timed one can create an unnecessary tax bill. There’s a lot to figure out when it comes to in-plan conversions, so make sure you are fully informed to make the right decision for your situation!

Did you miss out on the first part of our Roth In-Plan Conversions mini-series? Then, make sure to check it out!

Find Out More with My Military Savings and Finances!