Posted on Friday, 19th September 2025 by

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Starting in January 2026, you can perform TSP Roth in-plan conversions to move money from your traditional TSP to a Roth TSP, paying taxes on the converted amount that year.

Alternatively, you can transfer your traditional TSP funds to a Roth IRA, which is a taxable event. For Roth in-plan conversions, you must use personal funds, not TSP assets, to pay the taxes on the converted amount.

IRMAA Impact

For those on Medicare, when making a conversion, check the Income Related Monthly Adjustment Amount (IRMAA) limits to assess the impact on your Medicare Part B and D premiums. This, along with any RMDs, can dramatically increase your premiums.

 

Don’t Cut and Run Without an Annuity – Deferred and Early Retirements

 

Benefit and Timing

This allows you to have both traditional and Roth funds within your TSP account, with the converted funds growing tax-free and not subject to Required Minimum Distributions (RMDs) in retirement.

To determine how much to convert each year without creating higher Part B and D premiums for those on Medicare, check the IRMAA income limits to see where your anticipated income falls.

If your current joint income in 2025 from all sources is approximately $112,000, converting up to $100,000 to a Roth will keep you in the first Medicare IRMAA bracket of $212,000. Your Medicare premium would be $185. Single filers are limited to an income of $106,000 before going to the next premium tier.

The IRMAA is a premium surcharge applied to higher-income Medicare beneficiaries. It applies to participants in original Medicare and Medicare Advantage plans.

Medicare premiums are determined by adding the following tax-exempt income back to your Adjusted Gross Income (AGI), creating the Modified Adjusted Gross Income (MAGI) that is used for determining your IRMAA:

  • Untaxed foreign income that was excluded from your gross income.
  • Tax-exempt interest from sources such as municipal bonds.
  • The portion of your Social Security income that isn’t taxed.

If you converted more than the calculated amount, you and your spouse would move to the second tier, and have to pay $259 monthly for Medicare B premiums; your Part D premiums would also increase. Many who elect to enter Medicare Advantage health plans may be required to pay Part D premiums if their income exceeds the lower limit.

Care must be taken because anything over the $106,000 limit for those filing individual tax returns and $212,000 for those filing joint returns would increase their Medicare premiums for at least a year down the road. Therefore, it’s best to underestimate to avoid increased premiums.

Medicare premiums for 2026 are calculated based on your 2024 income tax return, so you wouldn’t pay a higher Medicare premium until 2027 if you entered a higher tier this year.

Taxable Event

Regardless of what IRMAA level you will be in, both Roth transfer methods result in a taxable event since you are moving deferred-tax money from your traditional TSP into an after-tax (Roth) account. This will not only impact your Medicare premiums but may also cause you to be taxed at a higher income tax bracket for the year. My next article features how to avoid moving to a higher tax bracket.

You can’t use TSP assets to pay the taxes on the conversion, and you can’t roll over your RMD for the year you make this change. The TSP will send your RMD regardless, and you must use personal funds outside of your TSP to pay the taxes.

The TSP recommends, “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.”

Update – Reduced Schedule

I intend to reduce the frequency of my blog and email newsletter posts to twice a month, and it’s time to settle into the life of a retiree and enjoy what is yet to come. If something pressing comes up, I may still issue short announcements between bi-monthly posts to keep everyone informed of significant events or changes that are coming our way.

Please continue to send your questions and comments. I derive my articles from the input you submit. It’s been a pleasure providing this service for the past 40 years, and I hope to continue on a reduced schedule in the future.

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Disclaimer: The information provided may not cover all aspects of unique or special circumstances.  Federal regulations, medical procedures, investment information, and benefit details are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance, including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The information contained herein may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. You should consult a financial, medical, or human resource professional where appropriate. Neither the publisher nor the author shall be liable for any loss or other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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