Too Much In TSP (Roth Conversion?)

[AstroEng]

I'm finding confusing (perhaps conflicting) information online for USG employees. I've recently come to the conclusion that maxing out my TSP is probably not a great strategy at this point in my life. I am 42 and have $650K in the TSP (plus other assets). If I don't put another dime in, I'm looking ate more that $1.5M by the time I hit my Minimum Retirement Age (MRA). Previously, I've read a number of posts and some articles on Roth Ladders, kind of just figuring I'd start doing that.

What confuses me though, is that from what I am reading on the TSP website is that I cannot convert my Traditional TSP to a Roth before I am 59 1/2 and still working for USG. I thought that was just to avoid the penalties originally, but now it looks like it simply isn't allowed. Most of the advice I can find online is for people at that age wanting to roll over to a Roth. Even a number of the responses I've found in the forums here are not certain (non-TSP folks saying you should be able to do a Roth Ladder.

So I guess my question is this: is there a technique for a Roth Ladder Conversion for someone who intends to remain "in-service" and is only in their 40s? I'm not sure I actually want to retire in 5 years, but I'd sure like to have that as an option. I'm close to being able to make it the 5 years cool down period for the ladder, but definitely can't make it the next 17 years with my TSP locked up.

For the near future, I am dialing back my TSP contributions to the minimum matching - I don't need any more money locked up in an account I can't access...

Thanks in advance!

[alittlelife]

Why not just switch to making Roth TSP contributions? Whenever you retire, that portion can be rolled over into a Roth IRA and you can access your contributions penalty free.

https://forum.mrmoneymustache.com/taxes/question-about-using-roth401k-dollars/

[AstroEng]

I have done that. My concern is the $7000 limit. Again, that would leave the majority locked in the TSP. Also, from what I can find, it looks like Roth TSP funds are stuck until I'm 55 unless I can justify financial hardship. Maybe I'm misunderstanding something about the inaccessibility of TSP funds for early retirement?

[NotJen]

I have done that. My concern is the $7000 limit. Again, that would leave the majority locked in the TSP. Also, from what I can find, it looks like Roth TSP funds are stuck until I'm 55 unless I can justify financial hardship. Maybe I'm misunderstanding something about the inaccessibility of TSP funds for early retirement?

When you separate from service, you can roll your TSP into Traditional and Roth IRAs.  You can remove *contributions* from a Roth IRA tax and penalty free before you reach 59.5.

[Dee18]

The Roth TSP contribution limit for 2024 is $23,000, plus an additional $7,500 catch-up contribution for those aged 50 and older.

[AstroEng]

The Roth TSP contribution limit for 2024 is $23,000, plus an additional $7,500 catch-up contribution for those aged 50 and older.

Oops, you're right. I was pulling that from my post-Traditional contribution. I still want to get the full matching contributions, and from everything I've seen, those can only go into Traditional. I guess I didn't think about if they would match my Roth (and end up in the Traditional - i.e. I put $1000 in Roth, they match with $500 in Traditional).

[Dee18]

Apparently you can also still do the $7000 individual Roth IRA outside of your TSP.

[AstroEng]

Yeah - that's what I was referring to. So far I don't see a way to do the ladder and stay employed by USG. I can 0 my Traditional TSP, minimize my Roth TSP to only get matching, then dump everything else into Roth IRA and Taxable accounts.

I feel dumb for not having realized that I can't do the Roth conversion ladder at my current age because I am in the TSP. It would take a while to save up enough to cover the period until I can access my TSP, even if I took some more extreme measures.

[NotJen]

From what I remember from my planning (with a 401k instead of TSP), the Roth ladder started after separation from service when I could roll over my 401k and have access to convert those funds.  I did not have access to in-service rollovers.  The plan was to amass 5 years expenses in readily accessible (taxable and older Roth IRA *contributions*) funds to bridge the 5 year gap.

In practice, I haven't needed the ladder and have only done a few small Roth conversions for the purpose of maximizing my ACA subsidy.

What is your planned FIRE spending?  How much is your annual savings?

[alittlelife]

I feel like you're skipping a step here, trying to do a Roth ladder before you retire. Why not just contribute directly to the Roth TSP?

So far I don't see a way to do the ladder and stay employed by USG. I can 0 my Traditional TSP, minimize my Roth TSP to only get matching, then dump everything else into Roth IRA and Taxable accounts.

That is correct, you can make a Roth TSP contribution and get the match (it will go to your Traditional TSP). But I still don't understand why you prefer to contribute to a taxable account before maxing out your Roth TSP. You will have access to those Roth contributions as soon as you leave service and roll them over to a Roth IRA. Is it really worth having access to the gains sooner by putting the money in a taxable account?

[AstroEng]

I feel like you're skipping a step here, trying to do a Roth ladder before you retire. Why not just contribute directly to the Roth TSP?

That is correct, you can make a Roth TSP contribution and get the match (it will go to your Traditional TSP). But I still don't understand why you prefer to contribute to a taxable account before maxing out your Roth TSP. You will have access to those Roth contributions as soon as you leave service and roll them over to a Roth IRA. Is it really worth having access to the gains sooner by putting the money in a taxable account?

Maybe this is the part that is throwing me off. I was thinking start the ladder now and in 5 years start drawing on it (again, I'm not sure I actually want to retire in 5 years). From what you are saying, my current issue is that I have a traditional TSP. So I would first need to switch to fully funding a Roth TSP, then at retirement (and a 5 year cool off period while I continue to work) I could rollover the Roth TSP to a Roth IRA and start drawing on it? I would then continue the ladder, but with my now-freed-up Traditional TSP to a Roth IRA, paying taxes on that conversion and planning to draw on those funds in an additional 5 years.

When I rollover a Roth TSP to a Roth IRA, I don't incur another 5 year cool down period right?

It's not my preference to contribute to a taxable account - I'm just trying to understand what path actually gives me access, without a penalty (or minimizes the penalty), at age 47-ish.

[NotJen]

So I would first need to switch to fully funding a Roth TSP, then at retirement (and a 5 year cool off period while I continue to work) I could rollover the Roth TSP to a Roth IRA and start drawing on it? I would then continue the ladder, but with my now-freed-up Traditional TSP to a Roth IRA, paying taxes on that conversion and planning to draw on those funds in an additional 5 years.

Basically, but there's no 5 year cooling off for contributions.

It's not my preference to contribute to a taxable account - I'm just trying to understand what path actually gives me access, without a penalty (or minimizes the penalty), at age 47-ish.

Not knowing what you spend and save each year [or what the 'other assets' are in your OP] - but if it's close to $30k (including taxes!), you can do the following:

(age 43) 2025 - $23k to Roth TSP, $7k to Roth IRA
(age 44) 2026 - $23k to Roth TSP, $7k to Roth IRA
(age 45) 2027 - $23k to Roth TSP, $7k to Roth IRA
(age 46) 2028 - $23k to Roth TSP, $7k to Roth IRA
(age 47) 2029 - $23k to Roth TSP, $7k to Roth IRA, Retire, roll TSP to Trad and Roth IRAs
(age 48) 2030 - Live on $30k Roth contributions, convert $30k Trad to Roth
(age 49) 2031 - Live on $30k Roth contributions, convert $30k Trad to Roth
(age 50) 2032 - Live on $30k Roth contributions, convert $30k Trad to Roth
(age 51) 2033 - Live on $30k Roth contributions, convert $30k Trad to Roth
(age 52) 2034 - Live on $30k Roth contributions, convert $30k Trad to Roth
(age 53) 2035 - Live on $30k Roth conversion, convert $30k Trad to Roth
(age 54) 2036 - Live on $30k Roth conversion, convert $30k Trad to Roth
(age 55) 2037 - Live on $30k Roth conversion
(age 56) 2038 - Live on $30k Roth conversion
(age 57) 2039 - Live on $30k Roth conversion
(age 58) 2040 - Live on $30k Roth conversion
(age 59) 2041 - Live on $30k Roth conversion
(age 59.5) - regular access to retirement funds

I think I counted the contributions and conversions correctly, but apologies for any typos.  There is probably some more exact timing you can play with to minimize taxes, but that's the basic idea.


Have you read this post about the Roth pipeline? https://forum.mrmoneymustache.com/taxes/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

[AstroEng]

Thanks!

That's pretty much in line with what I sketched out on a whiteboard yesterday.

I hadn't read that specific post, just a bunch of other articles/posts about the Roth Ladder.

Basically, my confusion all centered around suddenly realizing I couldn't pull out any of my Traditional TSP to start the ladder. I hadn't considered using Roth TSP that I could rollover to a Roth IRA and immediately start drawing on the contributions (in 5 years). I kind of wish I had started the Roth TSP or IRA earlier - but in past readings I had ruled it out as I have (had) no expectation of being in a higher tax bracket when retired. I have recently started reexamining that assumption as well.

Thanks again for everyone's help!

[dabighen]

I briefly left Federal service and did this to about 350K for the reasons OP stated. I returned to Federal service and just started a new TSP.  Happy I had foresight in this instance taking advantage of the break in service

I have done that. My concern is the $7000 limit. Again, that would leave the majority locked in the TSP. Also, from what I can find, it looks like Roth TSP funds are stuck until I'm 55 unless I can justify financial hardship. Maybe I'm misunderstanding something about the inaccessibility of TSP funds for early retirement?

When you separate from service, you can roll your TSP into Traditional and Roth IRAs.  You can remove *contributions* from a Roth IRA tax and penalty free before you reach 59.5.

[AstroEng]

I briefly left Federal service and did this to about 350K for the reasons OP stated. I returned to Federal service and just started a new TSP.  Happy I had foresight in this instance taking advantage of the break in service

Out of curiosity, did you stop working temporarily and then go back to federal service? I've toyed with the idea of leaving to spend more time with the kids and then return to service for a few years to hit the MRA and get access to Federal health benefits. Really, those benefits are the only major reason I'd consider staying in another 15 years. I do enjoy my job (most of the time), but I'd like to do other things in life too, while I can.

[sparkytheop]

TSP announced during a recent meeting (November?) that they plan to allow in-plan conversions starting in 2026.  A few websites have published this, and I've seen screenshots from the powerpoint at the meeting, but the minutes themselves, and official word from TSP, have not yet been published.  Expect to hear some kind of official statement from TSP in the future.

So, in 2026, you'd be allowed to start conversions within TSP, but you still need to keep in mind the taxes.  If you plan to leave before MRA, you could have some very low income years where you could take advantage of Roth conversions at a much better tax rate.  So, instead of trying to start the five year ladder now, while working, maybe max out Roth TSP and a Roth IRA instead (total would be $30k/year total, starting 2025).  You do this for five years, separate and live off Roth contributions (once they have been rolled into a Roth IRA) until your first of many Roth conversions becomes available.

If you plan to continue working to MRA, it may or may not be worth doing in-plan conversions when they become available.  It takes calculations and guess work (current earnings/taxes, future gains, taxes, etc), so there is no one right answer for this.

[dabighen]

I briefly left Federal service and did this to about 350K for the reasons OP stated. I returned to Federal service and just started a new TSP.  Happy I had foresight in this instance taking advantage of the break in service

Out of curiosity, did you stop working temporarily and then go back to federal service? I've toyed with the idea of leaving to spend more time with the kids and then return to service for a few years to hit the MRA and get access to Federal health benefits. Really, those benefits are the only major reason I'd consider staying in another 15 years. I do enjoy my job (most of the time), but I'd like to do other things in life too, while I can.

No, I left GS 12 for a municipal job. Then returned to the Federal workforce at a higher GS 13. But before I returned, I was sure to roll my TSP into my IRA for flexibilities sake.

[elysianfields]

I feel like you're skipping a step here, trying to do a Roth ladder before you retire. Why not just contribute directly to the Roth TSP?

So far I don't see a way to do the ladder and stay employed by USG. I can 0 my Traditional TSP, minimize my Roth TSP to only get matching, then dump everything else into Roth IRA and Taxable accounts.

That is correct, you can make a Roth TSP contribution and get the match (it will go to your Traditional TSP). But I still don't understand why you prefer to contribute to a taxable account before maxing out your Roth TSP. You will have access to those Roth contributions as soon as you leave service and roll them over to a Roth IRA. Is it really worth having access to the gains sooner by putting the money in a taxable account?

In our position, I found that contributing to Roth TSP would raise our AGI to a point where we couldn’t contribute to our Roth IRAs (we’re not able to back door Roth).  However, Roth conversions, though they raise one’s AGI, are not counted toward the limit for contributing to Roth IRAs.

Consequently, I switched my TSP back to Traditional to allow easier management of our AGI and full Roth IRA contributions.

In 2026, my catchup TSP contributions will all go to Roth anyway, due to SECURE Act 2.0, so I’ll need to re-evaluate.

[Sugaree]

For what it's worth, I'm hearing rumors that the TSP will start allowing in-service conversions next year. 



https://www.moaa.org/content/publications-and-media/news-articles/2025-news-articles/finance/thrift-savings-plan-planning-to-unveil-roth-transfer-option-in-2026/

[elysianfields]

For what it's worth, I'm hearing rumors that the TSP will start allowing in-service conversions next year. 



https://www.moaa.org/content/publications-and-media/news-articles/2025-news-articles/finance/thrift-savings-plan-planning-to-unveil-roth-transfer-option-in-2026/

I’m all about the TSP broadening their horizons and joining the 21st century, including allowing in-service conversions.  This would provide more options for converting while keeping funds in the TSP, which has world-beating low investment expenses.  Edited to add: well it appears other funds now offer lower expenses, e.g. FXAIX charges only 0.015% vs. C fund at 0.048%.

That said, the I fund is pretty crappy, as it is an ex-US, ex-China, ex-Hong Kong fund with mostly European and very little in the way of emerging market exposure.  Edited to add: the FRTIB just changed the index followed for the I fund which they claim expanded the market exposure, per November 2024 minutes here:  https://www.frtib.gov/meeting_minutes/2024/2024Nov.pdf

Also, since the huge TSP contractor fuckup changing from the legacy accounting system to the current one in June 2022, TSP no longer provides its members per-share accounting of purchases and sales, which seems to me a primordial requirement for a 21st-century retirement plan accounting system.

[Sugaree]

For what it's worth, I'm hearing rumors that the TSP will start allowing in-service conversions next year. 



https://www.moaa.org/content/publications-and-media/news-articles/2025-news-articles/finance/thrift-savings-plan-planning-to-unveil-roth-transfer-option-in-2026/

I’m all about the TSP broadening their horizons and joining the 21st century, including allowing in-service conversions.  This would provide more options for converting while keeping funds in the TSP, which has world-beating low investment expenses.  Edited to add: well it appears other funds now offer lower expenses, e.g. FXAIX charges only 0.015% vs. C fund at 0.048%.

That said, the I fund is pretty crappy, as it is an ex-US, ex-China, ex-Hong Kong fund with mostly European and very little in the way of emerging market exposure.  Edited to add: the FRTIB just changed the index followed for the I fund which they claim expanded the market exposure, per November 2024 minutes here:  https://www.frtib.gov/meeting_minutes/2024/2024Nov.pdf

Also, since the huge TSP contractor fuckup changing from the legacy accounting system to the current one in June 2022, TSP no longer provides its members per-share accounting of purchases and sales, which seems to me a primordial requirement for a 21st-century retirement plan accounting system.

I agree that the TSP no longer holds the clear advantage over other options.  The mutual fund window fees are absolutely atrocious.  I don't touch the I fund at all.  That being said, I am glad to see in-service conversions become a thing, even though I'm at a point in my career that it doesn't necessarily make a whole lot of sense to do so.  In the past, the rational behind not offering it was basically that we were too stupid to understand the tax consequences of doing so, and that's pretty insulting.