Why Federal Employees May Want to Slow Down Before Doing Roth Conversions in 2026

Roth conversions have become one of the most talked-about strategies in retirement planning. Many headlines suggest converting pre-tax retirement savings to Roth accounts is something people should act on quickly, especially with tax rules changing in the future.

However, for federal employees and other government workers, the decision to convert money from a Traditional TSP to Roth may require more careful timing than the headlines suggest. As 2026 approaches, Roth conversions are still allowed, but the tax planning surrounding them is becoming more complex.

Because federal workers often have pensions, structured retirement income, and specific tax considerations, rushing into a conversion without a full strategy can sometimes create more problems than it solves.

Before making a decision, here are several factors federal employees should think about.

Roth Conversions Create a Taxable Event Right Away

When money is moved from a traditional retirement account into a Roth account, the IRS treats that amount as taxable income for that year.

Unlike some other tax decisions, a Roth conversion cannot be reversed once it is completed. That means the tax consequences are locked in permanently.

For many federal employees, especially those in senior positions such as GS-13, GS-14, GS-15, or SES roles, income is already at its highest level during the years leading up to retirement. Converting a large amount of TSP savings while still earning a full salary can push taxable income much higher.

For instance, a GS-14 employee earning $155,000 who converts $75,000 from a Traditional TSP would report roughly $230,000 in taxable income for that year before deductions. Because the converted funds are added to existing income rather than replacing it, this can push the employee into a higher tax bracket. The higher income could also increase future Medicare premiums or affect how much of their Social Security benefits will eventually be taxed.

Paying taxes on retirement savings is unavoidable at some point, but the timing of when those taxes are paid can make a significant difference.

Retirement Often Comes With Lower Taxable Income

Federal employees often have a different retirement income structure than workers in the private sector. Most retirees receive a pension and may delay Social Security for several years, which can temporarily reduce their taxable income.

This creates what many planners consider an important tax planning opportunity: the period after retirement but before required minimum distributions begin. During those years, retirees may fall into lower tax brackets compared to their working years.

If that happens, converting retirement funds after leaving federal service could result in paying taxes at a lower rate than converting them while still employed.

For that reason, many federal employees should first consider whether their tax bracket is likely to drop once they stop working. If it does, waiting to convert could lead to better tax outcomes.

New Catch-Up Contribution Rules Start in 2026

Beginning in 2026, employees aged 50 and older with income above the designated threshold will have to make their catch-up retirement contributions as Roth contributions instead of traditional pre-tax contributions.

This change means many higher-income federal workers will already be increasing their taxable income automatically starting in 2026.

Since Roth contributions are made with after-tax dollars, these employees will see a reduction in take-home pay compared with traditional contributions.

If someone already has mandatory Roth contributions affecting their tax situation, voluntarily adding a large Roth conversion during the same year could push their income even higher than expected.

In other words, some federal employees will already be shifting toward Roth taxation without needing to convert additional funds.

Higher Income Can Affect More Than Just Taxes

A Roth conversion can impact several areas beyond federal income taxes.

For example, a higher adjusted gross income can trigger Income-Related Monthly Adjustment Amount (IRMAA) surcharges for Medicare. These surcharges increase the cost of Medicare Part B and Part D and are based on income from two years prior.

Higher income can also increase the portion of Social Security benefits that becomes taxable. In addition, depending on the state where a retiree lives, state income taxes may apply during the year of the conversion.

Some tax credits, deductions, or income-based benefits may also be reduced or eliminated when income rises due to a conversion.

Because of these ripple effects, the true cost of a conversion can be higher than it initially appears.

The Source of the Tax Payment Matters

Another key factor in evaluating a Roth conversion is how the taxes will be paid.

Generally, conversions work best when the tax bill can be covered using funds outside of retirement accounts. If someone needs to pull money from savings that serve as an emergency fund, the conversion could reduce financial security.

Borrowing money to pay the taxes introduces another layer of risk because interest costs can offset the long-term benefits of the conversion.

For federal employees nearing retirement, maintaining accessible cash reserves is often just as important as minimizing taxes. A conversion strategy should not weaken financial flexibility.

A Pension Changes the Tax Planning Equation

One of the advantages federal retirees have is a reliable pension. However, that predictable income also occupies part of their tax bracket every year.

Because pension payments create steady taxable income, federal retirees may have less flexibility than people who rely solely on withdrawals from investment accounts.

Instead of doing a single large Roth conversion, many federal retirees find it more effective to convert smaller amounts gradually over multiple years. This approach allows them to manage tax brackets more carefully and adapt their strategy as retirement income evolves.

Using up lower tax brackets too quickly can limit future planning opportunities.

Required Minimum Distributions Should Be Planned Carefully

Concerns about future required minimum distributions often drive interest in Roth conversions. While RMDs can increase taxable income later in retirement, converting too aggressively too early may not always be the best solution.

A more effective approach often involves spreading conversions across several years, especially during periods when income is temporarily lower.

Coordinating conversions with pension income, Social Security timing, and other retirement income sources can create a more balanced long-term tax strategy.

Without a multi-year plan, large conversions may lead to unnecessary tax costs.

Conversions Are a Choice, Not a Requirement

One of the most important points for federal employees to remember is that Roth conversions are optional.

There is no rule requiring employees to convert funds before 2026. The option to convert retirement savings will remain available in the future.

In fact, for many government workers, the most tax-efficient time to convert may occur after retirement when income is lower and tax brackets provide more flexibility.

The goal is not simply to move money into Roth accounts. The objective is to convert the appropriate amount at the most advantageous time.

Final Thoughts

Roth conversions can play an important role in retirement tax planning, but they should be approached thoughtfully—especially for federal employees with pensions and structured retirement benefits.

Before making a conversion, it’s important to evaluate current income levels, potential tax brackets in retirement, mandatory Roth catch-up contributions, the timing of Social Security, possible Medicare premium increases, and overall cash flow needs.

In many situations, the best strategy isn’t a large conversion right away. Instead, a carefully planned series of smaller conversions spread across multiple years can produce better long-term results.

Good retirement tax planning focuses on timing and flexibility—not urgency.

Join us for our upcoming, complimentary training session:

Federal Retirement Tax Planning & TSP Maximization

Tues, March 31st at 6:30pm EST   |   Thurs, April 2nd at 1:00pm EST

During the webinar, we’ll cover:

• One rule change with major tax consequences for federal employees.
• How to use Roth strategies to reduce future federal taxes.
• Using G and C Funds strategically for safety and growth.
• Partial Roth conversions to reduce future RMD tax shocks.
• How 2026 rules reset Traditional versus Roth TSP strategies.
• Interactive, Live 30-Min Q&A Session! 

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