Roth Conversion Strategies for a $1 Million TSP: What Linda’s Case Shows Federal Pre-Retirees (2026)
A federal employee who retires at 60 with a traditional TSP has roughly fifteen years before required minimum distributions start at 75. Those are the only years she controls her own tax bracket. In our webinar case study, a hypothetical NIH scientist named Linda who fills the 24% bracket with Roth conversions from 60 to 68 ends up with about $2.4 million more in tax-adjusted assets at 95, and pays about $550,000 less federal income tax over her life, than the same person who does nothing. This post walks through the case, the five strategies it illustrates, and what would change the answer.
If you are a FERS employee in Maryland, Virginia, or DC, your TSP is mostly or entirely traditional, and retirement is two to five years out, this is written for you. Linda is a hypothetical composite built for our September 2026 webinar, Keep More of Your TSP. She is not a client, and her numbers are not a recommendation. They are a worked example of how the pieces interact.
Why does a traditional TSP have a tax problem waiting at 75?
Every dollar in a traditional TSP has never been taxed. The IRS lets you defer, not skip. Under the final required minimum distribution regulations, anyone born in 1960 or later must begin RMDs at age 75 (Federal Register, final RMD regulations, July 2024). From that year on, the IRS decides how much comes out and is taxed, whether you need the money or not.
For a federal retiree the timing is awkward. Between retirement and 75, income is usually low: a FERS annuity, maybe part-time work, and later Social Security. Then the RMD arrives on top of all of it, and the tax bill roughly doubles in a single year. In the retirement-planning business this is sometimes called the tax torpedo. The years before it hits are the Roth conversion window, and the point of Linda's case is to show what that window is worth.
We covered the mechanics of the new in-plan option when it was first announced, in TSP Roth conversion: should I be excited?. This post is about the strategy.
Meet Linda (hypothetical)
| Item | Value |
|---|---|
| Age and status | 59, single, lives in Baltimore, Maryland |
| Employer | NIH, FERS, 20 years of service today, High-3 salary $200,000 |
| Retirement date | April 2027, age 60, 21 years of service (immediate, unreduced annuity) |
| Part-time work after retiring | Nonprofit, $50,000 a year W-2, ages 60 to 65 |
| TSP | $1,000,000, 100% traditional; keeps contributing the maximum with catch-up until she retires |
| Other assets | $50,000 bank CD; home worth $500,000 with a $2,000 a month mortgage paid off in 2031 |
| Spending | $6,000 a month plus the mortgage and FEHB premium; 3% inflation, 5% for healthcare |
| Health coverage | Stays on FEHB (FEP Blue Standard, $4,896 a year). No Medicare Part B |
| Planning horizon | Age 95 |
Three things about Linda drive everything that follows. She is single, so every bracket is the narrower single bracket. Her TSP is all traditional, so every dollar comes out taxable. And she keeps FEHB without Part B, so Medicare surcharges are not a cost in her case. If any of those differ for you, the numbers move, and the section on what could change the answer says how.
Her federal benefits, using the standard formulas
Her FERS annuity is 1% of her High-3 times years of service: 1% × $200,000 × 21 = $42,000 a year, with no cost-of-living adjustment until 62 (OPM, FERS types of retirement). Because she retires before 62 on an unreduced annuity, she also qualifies for the FERS annuity supplement, roughly her age-62 Social Security estimate times her federal years over 40: $35,000 × 21 ÷ 40 = $18,375 a year until 62.
The supplement has a catch that matters for the conversion plan. Like Social Security, it is reduced by an earnings test. In 2026 the exempt amount is $24,480, and $1 is withheld for every $2 earned above it (SSA, working while receiving benefits). On $50,000 of wages the reduction is $12,760, which cuts the supplement to about $5,615 a year, and unlike Social Security withholding it is never credited back. The FERS supplement earnings test has its own post. The point here is that the part-time job is still worth taking, because it delays TSP withdrawals and lets her wait on Social Security. Both of those widen the conversion window.
Her Social Security estimate is $35,000 a year at 62, $50,000 at 67, and $62,000 at 70.
The conversion window: 2026 single brackets
A Roth conversion adds the converted amount to taxable income for the year. The strategy is to convert up to the top of a chosen bracket and stop. For 2026 the single brackets are (IRS Rev. Proc. 2025-32):
| Rate | Taxable income |
|---|---|
| 10% | Up to $12,400 |
| 12% | $12,401 to $50,400 |
| 22% | $50,401 to $105,700 |
| 24% | $105,701 to $201,750 |
| 32% | $201,751 to $256,200 |
| 35% | $256,201 to $640,600 |
| 37% | Over $640,600 |
In Linda's first retirement year her annuity, wages, and supplement come to roughly $110,000. After the standard deduction, about $107,000 of room remains under the top of the 24% bracket. That is the size of her first conversion. Maryland adds its own tax, 5.75% at her income plus the 3.2% Baltimore City local rate, and the model includes it.
Three ways Linda could play it
The model holds everything constant except two decisions: when she claims Social Security, and whether she converts.
| Current plan | Claim at 67 and convert | Claim at 70 and convert | |
|---|---|---|---|
| Social Security | Claim at 62, $35,000 | Claim at 67, $50,000 | Claim at 70, $62,000 |
| Roth conversions | None | Fill the 24% bracket each year from 60; TSP fully converted by about 68 | Same |
| TSP | Stays traditional; withdraw as needed; RMDs from 75 | Becomes Roth; no RMDs | Becomes Roth; no RMDs |
| Conversion tax paid from | — | The TSP itself, since outside cash is only $50,000 | Same |
Projections are from RightCapital planning software, September 2026, using JP Morgan forward-looking return assumptions on a moderate allocation, 2026 federal law, and Maryland tax rules. They are hypothetical.
Pay the tax now, or pay it later with interest
Here is the shape of the annual tax bill under each plan. The current plan looks cheap for a long time. Then it does not.
| Age | Current plan | Claim at 67 and convert | Claim at 70 and convert |
|---|---|---|---|
| 60 to 68 (conversion years) | $14,000 to $39,000 | about $68,000 a year | about $68,000 a year |
| 70 | $16,600 | $8,100 | $7,800 |
| 75 (first RMD) | $35,600 | $9,400 | $11,200 |
| 85 | $58,100 | $12,500 | $14,500 |
| 93 | $79,200 | $15,600 | $17,700 |
In the current plan, tax stays around $15,000 a year from 66 to 74 because her only income is the annuity and Social Security. At 75 the first required distribution, about $91,000, arrives and the bill more than doubles. It then rises every year on money she must withdraw whether she needs it or not.
The conversion plans front-load the tax. She pays about $68,000 a year for nine years, in the years she chooses her bracket. After that her tax bill stays between $8,000 and $18,000 for the rest of her life, because a Roth has no RMD and Roth withdrawals are not income.
What happens to her invested assets
The honest part of the chart is that the conversion plans trail for more than twenty years. The tax is real money leaving the TSP.
| Age | Current plan | Claim at 67 and convert | Claim at 70 and convert |
|---|---|---|---|
| 65 | $1.56M | $1.21M | $1.21M |
| 75 | $2.34M | $1.65M | $1.44M |
| 85 | $2.61M (peak) | $2.77M | $2.61M |
| 95 | $1.27M | $3.69M | $3.77M |
The lines cross in the mid 80s. Before that the current plan flattens, peaks near $2.6 million at 85, and falls to about $1.3 million by 95 as RMDs, the tax on them, and the late-life care costs in the model drain a taxable account. The conversion plans keep compounding, all of it tax-free, and nothing forces it out.
How much is a TSP Roth conversion strategy worth? The scorecard
| Current: claim at 62 | Claim at 67 and convert | Claim at 70 and convert | |
|---|---|---|---|
| Probability of success | 85% | 96% | 99% |
| Median assets at 95 | $1,282,928 | $3,372,766 | $3,682,996 |
| Lifetime federal tax vs. current | — | $550,973 less | $554,437 less |
| Tax-adjusted ending assets vs. current | — | $2,410,839 more | $2,822,269 more |
Claiming at 70 edges ahead. But look at the ordering. The gap between the two conversion plans is a few hundred thousand dollars. The gap between converting and not converting is over two million. For Linda, the Roth decision is worth several times the claiming-age decision, and the Social Security claiming decision is itself worth six figures.
Five Roth conversion strategies from Linda's case
1. Convert in the bridge years, and start the year you retire
The window opens the day her salary stops and closes the day RMDs start. Every year she waits is a year of the window gone, and a year of bracket room that cannot be recovered. In Linda's model the whole TSP is converted by about 68, seven years before her first RMD would have been due. The general version of this idea, for anyone with a gap between work and Social Security, is in our Roth conversion gap years guide.
2. Pick the bracket by testing it, not by rule of thumb
Someone always asks why 24% and not 22%. We ran the same plan with the conversion capped at each bracket and measured tax-adjusted assets at 95.
| Convert up to the top of | Change vs. no conversion |
|---|---|
| 12% bracket | −$88,733 |
| 22% bracket | +$631,570 |
| 24% bracket | +$2,410,839 |
| 32% bracket | +$2,208,387 |
| 35% bracket | +$1,450,862 |
Stopping at 22% leaves most of the TSP unconverted when RMDs begin. Going to 32% or 35% pays tax today at rates she would never face in retirement. Stopping at 12% actually loses money, because too little is converted to justify the tax paid. The 24% cap is where the two costs balance for her numbers. For someone with a $2 million TSP the answer might be 32%; for a $400,000 TSP it might be 22%. The bracket is an output of the plan, not an input.
3. Delay Social Security to widen the window
Every dollar of Social Security she collects at 62 is a dollar of bracket room she cannot use for conversions. Waiting to 67 or 70 keeps the bridge years low-income. It also buys a larger benefit for life: delayed retirement credits add 8% a year between full retirement age and 70 (SSA, delayed retirement credits). In Maryland that larger benefit is also the most tax-efficient dollar in the plan, because the state does not tax Social Security at all. And a check claimed at 62 while she is earning $50,000 would be reduced by the same earnings test that already erased most of her supplement.
4. Know whether Medicare surcharges apply to you before you set the cap
Roth conversions count toward the modified adjusted gross income that sets Medicare Part B premiums two years later. For 2026 the standard premium is $202.90 a month, and the first surcharge tier starts above $109,000 of MAGI for a single filer (CMS, 2026 Medicare Parts A and B premiums). A $107,000 conversion on top of a $42,000 annuity would put Linda two or three tiers up.
Linda avoids that cost because she stays on FEHB and does not enroll in Part B. If you plan to take Part B, the income you report from age 63 on sets your premium at 65 and after, and the cap on your conversions may need to drop in those years. Whether to add Part B to FEHB is its own decision, covered in Medicare Part B with FEHB for federal retirees, and the surcharge mechanics are in how IRMAA works.
5. Plan where the conversion tax comes from
Since January 2026 the TSP allows in-plan Roth conversions: $500 minimum, up to 26 a year, for active and separated participants (TSP, Roth in-plan conversions; Federal Register, Roth in-plan conversions). The catch is that the TSP will not withhold tax from the converted amount. The tax has to come from somewhere else, and it is due through quarterly estimated payments, so a conversion made in the fall means a payment the following January 15.
Linda has $50,000 outside the TSP, which covers less than one year. The model therefore funds the tax with separate TSP withdrawals, which are themselves taxable and shrink the amount that ends up in Roth. Cash outside the TSP, from a taxable account or a spouse's income, makes every conversion cheaper. If you are two or three years from retirement, building that cash reserve is part of the conversion plan. One alternative is rolling a slice of the TSP to an IRA and converting from there with withholding, but a traditional IRA does not qualify for Maryland's pension exclusion the way TSP withdrawals do, so that choice deserves its own analysis. Details are in how Maryland taxes retirement income.
A sixth lever, and the order to pull them in
Once her annuity and Social Security cover her core spending, the TSP is not funding next year's groceries, and money she will not touch for fifteen to thirty years can carry more stock exposure. In the model a growth allocation adds roughly $390,000 of median wealth at 95 in either conversion plan, at the cost of about one point of success probability. That is worth having, and it is worth about one sixth of the Roth decision. The sequence matters: pension and Social Security income first, conversions second, allocation last.
What could change the answer
- A shorter life. Living to 82 instead of 95 shrinks the gain. On the asset chart the conversion plans trail until the mid 80s, so the crossover has to be reached, although the tax saved and the RMDs avoided start counting from 75.
- Medicare Part B. Enrolling adds surcharges to the conversion years from 63 on, which argues for a lower cap in those years.
- Returns and future tax law. Lower returns shrink the advantage. Higher future tax rates increase it. The model uses 2026 law as written.
- Cash outside the TSP. More of it makes conversions cheaper. Less of it, or a market decline during the conversion years, makes them dearer.
- A spouse. A married couple has wider brackets and a survivor who will one day file single on the same income. That usually strengthens the case for converting, but the numbers need their own run.
- Heirs. Non-spouse beneficiaries must generally empty an inherited account within ten years (IRS Publication 590-B). A traditional TSP lands in their highest earning years as taxable income. A Roth lands tax-free. If your heirs are in a lower bracket than you, or the money is going to charity, the case for converting weakens. Our post on TSP estate planning covers the beneficiary side.
What cannot be undone
- A Roth conversion is permanent. There has been no recharacterization since 2018.
- A Social Security claim can be withdrawn only within twelve months, and only once.
- The supplement lost to the earnings test is never repaid.
- Each conversion starts its own five-year clock. Linda is past 59½, so the 10% penalty on converted amounts does not apply to her, but tax-free earnings still require the Roth to have been open five years. That is one more reason to make the first conversion early, even a small one.
Bottom line
For a federal retiree with a large traditional TSP, the years between retirement and 75 are the only years the bracket is a choice. In Linda's hypothetical case, using those years to fill the 24% bracket with Roth conversions, while delaying Social Security, is worth more than two million dollars of tax-adjusted assets at 95 and about $550,000 of lifetime federal tax. Which bracket to fill, how to pay the tax, and whether Medicare surcharges apply are specific to your numbers, and the bracket sweep shows that guessing can cost most of the benefit.
If you want your own TSP, FERS, and Social Security modeled the way Linda's was, book an introductory call. Bring your latest TSP statement and your Social Security estimate. More guides are on the hub for federal employees, and our services page explains how tax planning fits the rest of the plan.
FAQ: Roth conversions for federal retirees
Can I convert my TSP to Roth inside the plan?
Yes, since January 2026. The TSP allows in-plan Roth conversions for active and separated participants, with a $500 minimum and up to 26 conversions a year. The TSP does not withhold tax on the conversion, so you need cash from another source, or a separate taxable withdrawal, to pay it.
When is the best time to do Roth conversions as a FERS retiree?
Between your retirement date and age 75, when RMDs begin for anyone born in 1960 or later. The window is widest in the years before Social Security starts, because income is lowest then and you choose how much of each bracket to use. In Linda's case the window runs from 60 to about 68 and the whole TSP is converted before RMDs.
Which tax bracket should I fill with Roth conversions?
It depends on the size of the balance, your other income, and how many years you have. In Linda's case, filling the 24% bracket beat 22% by about $1.8 million and beat 32% by about $200,000 in tax-adjusted assets at 95. Stopping at 12% lost money. Run the alternatives rather than picking one from a rule of thumb.
Do Roth conversions affect Medicare premiums?
Yes. Converted amounts count toward the MAGI that sets Part B premiums two years later. For 2026 the first surcharge tier begins above $109,000 for a single filer. Federal retirees who keep FEHB and skip Part B, as Linda does, avoid the surcharge; those who enroll in Part B may need a lower conversion cap from age 63 on.
Does Maryland tax Roth conversions?
Yes. Maryland taxes the converted amount as ordinary income in the year of conversion, at the state rate plus your county or city rate. Qualified Roth withdrawals later are free of both federal and Maryland tax, and Maryland does not tax Social Security, which is part of why delaying the benefit and converting the TSP work well together for a Maryland resident.
Sources
- IRS Rev. Proc. 2025-32, 2026 tax brackets and standard deduction
- IRS Publication 590-B, distributions from IRAs, including the 10-year rule and the five-year rules
- Federal Register, final required minimum distribution regulations (applicable age 75 for those born in 1960 or later), July 19, 2024
- Federal Register, FRTIB final rule on Roth in-plan conversions, January 15, 2026
- Thrift Savings Plan, Roth in-plan conversions coming to the TSP in January 2026
- OPM, FERS types of retirement and the annuity supplement
- SSA, receiving benefits while working (2026 earnings test)
- SSA, delayed retirement credits
- CMS, 2026 Medicare Parts A and B premiums and deductibles
- Maryland Comptroller, pension exclusion
Disclaimer: This article is for educational purposes only and is not tax, legal, or investment advice for your specific situation. Linda is a hypothetical composite created for an educational webinar, not a client. Projections come from planning software using stated assumptions, are hypothetical, and are not a prediction or promise of actual results. Results for any other person will differ. Consult your CPA and a licensed fiduciary before converting.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.