Federal retirement
Roth conversions for federal retirees
Should federal retirees do Roth conversions?
Often yes, and often earlier than expected. A FERS annuity is fully taxable income that arrives whether or not you want it, and it stacks with Social Security and eventual required distributions. The gap between retiring and starting Social Security is frequently the lowest-bracket window a federal retiree will ever have.
The short version
- A FERS annuity is largely taxable as ordinary income and begins immediately at retirement, unlike portfolio withdrawals which are discretionary.
- Required minimum distributions from a traditional TSP or IRA stack on top of pension and Social Security income, frequently pushing retirees into a higher bracket than they occupied while working.
- Roth conversions are taxable in the year they are made and cannot be undone; recharacterization of conversions was eliminated for tax years after 2017.
- Conversion income can affect Medicare IRMAA surcharges, which are assessed on a two-year lookback.
Why federal retirees are unusually good candidates
Most retirees see income drop sharply at retirement, then rise again when Social Security and required distributions begin. Federal retirees see something different: a pension starts immediately, so the trough is shallower, and the eventual peak is higher because the pension never stops.
That shape matters. If your income in your seventies will be higher than your income in your early sixties, which is the common pattern for a FERS retiree with a meaningful TSP balance, then converting during the low years moves money from a higher future bracket to a lower current one.
When the conversion window opens and closes
The window typically opens at retirement and narrows sharply once Social Security begins, then effectively closes when required distributions start.
For someone who retires at 57 with the special retirement supplement and delays Social Security to 70, that window can run more than a decade. For someone who retires at 62 and claims immediately, it may barely exist. The length of your window is the first thing to establish.
How much to convert in a given year
The usual approach is to convert up to the top of a target tax bracket and stop. Converting past that point pays a higher rate than the one you are trying to avoid, which defeats the exercise.
Two complications deserve attention. Conversion income counts toward the thresholds that trigger Medicare IRMAA surcharges, assessed two years later, so a conversion at 63 affects premiums at 65. And if you are receiving the special retirement supplement, additional earned income can reduce it, though conversion income itself is not earned income for that test.
Where the tax gets paid from
Paying the conversion tax from the converted amount defeats much of the benefit, because you are converting less and losing the withheld portion to tax immediately.
Paying from taxable savings is materially better: the full converted amount continues growing tax-free, and you have effectively moved additional money into the Roth without using contribution limits. If you do not have taxable savings available, that is an argument for converting less rather than for converting from the account itself.
Questions
Follow-ups we get asked.
Yes, a traditional TSP balance can be converted to a Roth IRA, and the converted amount is taxable in that year. Many people first roll the TSP to a traditional IRA, which makes it easier to convert in controlled annual increments rather than all at once.
It can. Medicare IRMAA surcharges are based on modified adjusted gross income from two years prior, so a large conversion at 63 can raise premiums at 65. This is a reason to spread conversions across several years rather than a reason to avoid them.
Conversions must be completed by December 31 to count for that tax year. Unlike IRA contributions, there is no extension into the following April, so the planning has to happen before year end.
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This article is general educational information, current as of July 29, 2026. It is not personalized investment, tax, or legal advice, and it does not take into account any individual's circumstances. Tax and benefit rules change; verify current rules against official sources before acting. TradeWinds does not provide tax or legal advice.