Of the $1.02 trillion on investment with the TSP across 7.25 million account holders as of the end of July, 2.82 million had some money in Roth status, totaling $81 billion. Image: zimmytws/Shutterstock.com - altered
By: FEDweek StaffThe TSP has added some details to the previously announced option for in-plan conversions of account balances in traditional status to Roth status starting in January, including that “If you don’t have a Roth balance in your TSP account, your first Roth in-plan conversion will create one.”
Under traditional investing, money is invested on a pre-tax basis but the investment and its earnings are taxable on withdrawal; under Roth investing, money is invested after-tax but is tax-free on withdrawal, as are the investment’s earnings if certain conditions are met. Roth balances also are not subject to required minimum distributions, which retirees must begin taking from traditional balances at age 73.
While investors may choose either for their personal investments, agency contributions for FERS employees (and military personnel) are only in traditional status.
“When you convert pre-tax money from your traditional TSP balance, your Roth in-plan conversion amount will become part of your taxable income for the year. This means that you’ll pay income tax on the conversion amount based on your income tax rate. You must pay the income tax on the conversion amount using personal funds from another source, such as a savings account. You cannot use part of the conversion amount in your TSP account to pay taxes,” a notice says.
“If you’re considering doing a Roth in-plan conversion, we strongly recommend that you consult a tax advisor to start planning how it would affect your taxable income and estimate how much you may need to pay in taxes,” it says, adding that the TSP is developing a calculator to help estimate the tax impact.
The TSP earlier had announced that the conversion option will be available to active participants, separated participants and spousal beneficiaries; that it will carry a minimum conversion amount of $500; and that the TSP will report the taxable amount to the IRS for the year in which the conversion is made but will not withhold any amounts to help fulfill the tax obligation.
Of the $1.02 trillion on investment with the TSP across 7.25 million account holders as of the end of July, 2.82 million had some money in Roth status, totaling $81 billion.
That includes 1.17 million of the more than 4.16 million accounts of current or former employees under FERS, whose average Roth balance is about $35,600 out of a total average account of about $205,000. Only about 8,800 of the 229,000 accounts of current or former employees under CSRS have Roth balances, averaging $43,400 of a total average account of $231,000.
In contrast, nearly three-fifths of current and former military personnel with TSP accounts have money in Roth status.
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See also,
The Best Ages for Federal Employees to Retire
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Should I be Shooting for a $1M TSP Balance? Depends…
FERS Retirement Guide 2025 – Your Roadmap to Maximizing Federal Retirement Benefits
