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!

Think of this as moving from understanding the basics to learning how to use the TSP more strategically. A lot of service members don’t realize this option even exists, but when used at the right time, it can shape both your tax bill today and your financial flexibility in retirement. My goal here is to walk you through it in the same clear, practical way we approached the basics without jargon, just the information you need to make a confident decision.

Let’s break it down together.

What Is a Roth in‑Plan Conversion?

A Roth in‑plan conversion moves money from your traditional (pre-tax) TSP balance into your Roth (after-tax) balance. You’re not withdrawing anything, you’re just shifting it inside your account. The trade-off is straightforward: you pay taxes now so you can enjoy tax-free withdrawals later, as long as IRS rules are met.

Think of it as choosing when you want to pay the tax bill now or later, in retirement.

A Quick TSP Refresher:

• Traditional TSP gives you a tax break today. You don’t pay taxes on the money you contribute, but you will pay taxes on both the contributions and the growth when you withdraw it in retirement.
• Roth TSP works the opposite way. You pay taxes on the contribution now, but both your contributions and the growth come is withdrawn tax-free in retirement if you follow the rules.

A Roth in‑plan conversion takes money you originally contributed as Traditional and treats it as if you had contributed it as Roth all along, meaning you settle the tax bill today in exchange for tax-free income later.

Who Can Convert?

Almost everyone with a TSP can do a Roth in‑plan conversion, including:

• Active‑duty service members
• Federal civilians
• Retirees
• Spouse beneficiaries
• Non-spouse beneficiaries are the ONLY group excluded.

The minimum conversion amount is $500, and you can do up to 26 conversions per year.

Special Note for Service Members with Combat‑Zone Contributions

If you’ve contributed tax-exempt money while deployed, a portion of your conversion will also be tax-exempt. However, the IRS requires conversions to be proportional, so you can’t choose to convert only the tax-free portion.

This means:

• If your tax-exempt balance is small, most of your conversion will still be taxable.
• If your tax-exempt balance is large, more of your conversion will be tax-free.

This is one area where military members have a unique advantage, but only if the math works in your favor.

Don’t forget to check out part two of this Roth In-Plan Conversions mini-series!

Find Out More with My Military Savings and Finances!