Roll TSP into Roth IRA: A Federal Employee’s Guide

For many federal employees approaching or entering retirement, the question comes up sooner or later: “Should I Roll TSP into Roth IRA or even a Roth IRA?”

It’s a good question and one that deserves more than a quick answer.

We meet federal employees all the time who’ve managed their Thrift Savings Plan (TSP) wisely for decades. But when it’s time to convert savings into income especially with taxes, Social Security, and survivor planning in the mix that’s where complexity creeps in.

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In our experience advising federal employees through this very transition, a TSP-to-Roth IRA rollover can be a powerful tool but it’s not right for everyone. The key is understanding how it fits into your bigger retirement picture, not just chasing tax-free growth.

Let’s break it down.

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1. Know Your Four Real Options

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When you retire or leave federal service, you can:

1. Leave your money in the TSP. You’ll keep benefiting from the plan’s simplicity and rock-bottom fees.
   
   
2. Transfer your TSP to your new employer’s plan (if you move to another position that offers one).
   
   
3. Roll your balance into an IRA either traditional or Roth.
   
   
4. Cash it out (almost never a good move due to taxes and penalties).
   
   

Most of our clients end up comparing just two: staying in the TSP or rolling to an IRA. The right choice depends on your age, income, tax bracket, and how hands-on you want to be with your investments.

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2. Why Some Federal Employees Consider a Roth IRA

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Roth IRAs offer something your TSP doesn’t: tax-free income in retirement.

Once you pay taxes on the amount you convert, your money grows tax-free and you can withdraw it tax-free later, as long as you follow IRS rules. That’s especially appealing for retirees who expect their pensions and Social Security to push them into a higher tax bracket down the road.

Another big benefit: no required minimum distributions (RMDs) during your lifetime. This gives you more control over when and how you take income, which can help manage taxes and preserve assets for heirs.

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In our experience working with federal retirees, the Roth IRA often becomes the “flexibility bucket” the place you draw from strategically when tax planning or adjusting your income year to year.

Example: One client, a recently retired law enforcement officer, rolled a portion of his traditional TSP into a Roth IRA during the two low-income years between his separation and the start of his FERS pension. That move allowed him to pay taxes at a lower rate and later enjoy completely tax-free withdrawals a decision that will likely save him thousands over his lifetime.

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3. The Tax and Timing Trade-Offs

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Rolling over from a traditional TSP to a Roth IRA is considered a conversion, meaning the amount you move counts as taxable income for that year. If you move too much at once, you could bump yourself into a higher tax bracket.

Rolling from a Roth TSP to a Roth IRA, however, is generally tax-free just watch the five-year rule that governs when you can withdraw earnings tax-free.

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In our experience, the smartest approach is often a partial conversion strategy:
converting smaller amounts over multiple years, especially in your “gap years” after retirement but before your FERS and Social Security income begin. This spreads the tax hit and gives you long-term flexibility.

And whatever you do, request a direct transfer (trustee-to-trustee). We’ve seen too many people try an “indirect” rollover, only to get hit with 20% tax withholding or penalties for missing the 60-day deadline. It’s not worth the risk.

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4. TSP vs. IRA: Fees, Flexibility, and Service

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The TSP’s cost advantage is undeniable with expense ratios averaging around 0.06%, it’s one of the most efficient retirement plans in the country.

But it’s also limited. You have just five core investment funds and little flexibility in how withdrawals are structured.

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By contrast, a Roth IRA opens the door to virtually unlimited investment options mutual funds, ETFs, individual securities, and professionally managed portfolios along with personalized strategies for taxes, risk, and withdrawals.

In our work, we often find that the right answer depends on how involved you want to be:

• If you prefer a hands-off, low-cost setup, staying in TSP makes sense.
  
  
• If you value custom strategy, tax optimization, and ongoing advice, a fiduciary-managed Roth IRA may be worth the higher cost.
  
  

Remember, this isn’t about chasing returns it’s about aligning your accounts with your retirement lifestyle.

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5. What’s Unique for Federal Employees

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Federal retirement planning has its own rules and the TSP plays just one role in the larger structure.

Here are key factors to weigh before making a move:

• FERS or CSRS Coordination: Your TSP works alongside your pension and Social Security. Converting part to a Roth can give you a tax-free income stream to balance against taxable FERS payments.
  
  
• The Age 55 Rule: TSP rule 55, If you separate from service at 55 or older, the TSP allows penalty-free withdrawals something IRAs don’t until age 59½.
  
  
• Spousal and Survivor Benefits: TSP has built-in protections for spouses that IRAs handle differently. Know how the rollover affects your survivor plan.
  
  
• RMD Flexibility: Traditional TSPs require RMDs at age 73; Roth IRAs don’t. That can be a major planning advantage if you don’t need immediate income.
  
  

In our experience, the employees who make the best rollover decisions are those who coordinate their TSP with their pension, Social Security, and spouse’s benefits rather than viewing it in isolation.

Also read - roth ira contribution limits 2026

6. How to Decide: A Practical Checklist

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Before you decide, ask yourself:

Am I likely to be in a higher or lower tax bracket later?
Do I need more investment flexibility, or is simplicity more valuable?
Will I need to access these funds before 59½?
Do I want to leave tax-free assets to my spouse or heirs?

Example Scenarios:

• Mid-Career (Age 45): You’re earning less now but expect higher income later smaller annual Roth conversions could lock in today’s lower tax rates.
  
  
• Pre-Retirement (Age 60+): You’re starting your FERS pension and Social Security soon maybe keep some funds in TSP for stability and roll a portion to Roth for flexibility.
  
  

In our practice, we often remind clients: the right solution isn’t “all or nothing.” It’s about mixing the two smartly.

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7. Common Mistakes to Avoid

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• Rolling everything out of the TSP without understanding what you’re giving up.
  
  
• Falling for “free rollover” marketing without reading the fine print on fees.
  
  
• Triggering unnecessary taxes by converting too much at once.
  
  
• Forgetting the five-year rule for Roth IRAs.
  
  
• Losing penalty-free withdrawal rights by moving funds too early.
  
  

We’ve seen even the most careful savers make these mistakes all avoidable with a little planning and good advice.

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8. When It Makes Sense to Bring in an Advisor

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If your TSP balance is substantial or you’re juggling multiple income sources (FERS, Social Security, outside investments), a fiduciary advisor who understands federal benefits can add real value.

In our experience, the biggest benefit of professional help isn’t just higher returns it’s clarity. Once you know your numbers, your taxes, and your plan, the anxiety about “what if I mess this up?” disappears.

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An advisor can model the tax impact of partial conversions, integrate your pension income, and build a sustainable withdrawal strategy so you can focus less on spreadsheets and more on enjoying retirement.

9. Key Takeaways

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• Rolling your TSP into a Roth IRA can offer tax-free growth, flexibility, and control but only when timed strategically.
  
  
• The TSP remains a powerful, low-cost option don’t leave it just because someone tells you “everyone’s doing it.”
  
  
• Federal employees face unique factors age rules, FERS/CSRS income, and survivor benefits that deserve specialized guidance.
  
  
• The smartest moves often blend both worlds: keeping part of your TSP while converting part to a Roth for long-term tax freedom.
  
  

Next Step: Let’s Build Your Federal Retirement Game Plan

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If you’re weighing whether a TSP rollover or Roth conversion makes sense for you, we can help.

Our team specializes in federal retirement income planning, helping employees and retirees coordinate their TSP, FERS, and Social Security for stable, tax-efficient income throughout retirement.‍

Schedule your complimentary consultation today to discover how a customized plan could help you retire with more clarity and confidence.

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Content sources

FINRA

Investopedia

U.S. Office of Personnel Management

Asset Preservation Wealth & Tax

AAFMAA Wealth Management & Trust LLC

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Disclaimer: This article is for educational purposes only and should not be considered individualized investment or tax advice. Always consult with a qualified fiduciary advisor before making any rollover or conversion decisions. The author and firm are not affiliated with or endorsed by the Thrift Savings Plan, the Federal Retirement Thrift Investment Board (FRTIB), or any U.S. government agency.

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