Craig Wear, CFP®Craig Wear, CFP® | Expert in Roth Conversions & Tax-Efficient Retirement Strategies for IRA Millionaires

Federal Employees Can Save Millions on Taxes Using this

1 Jul 2026 · 1 min

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1:13

In this video, CFP® Craig Wear explains a recent change to the Federal Thrift Savings Plan (TSP) that now allows participants to perform an in‑plan Roth conversion—moving money directly from the traditional (pre‑tax) side of the TSP to the Roth (post‑tax) side. He contrasts this with the older, cumbersome method that required withdrawals, rollovers, and complex tax reporting, which often led to mistakes, withholding issues, and penalties. Wear highlights how traditional TSP balances drive future required minimum distributions (RMDs); as the balance grows, RMDs—and the associated tax liability—rise dramatically, creating a “tax cliff.” By converting to Roth within the plan, employees can lower their future RMD base, avoid the steep tax drop, and effectively “switch tracks” from the default IRS path to a strategy that reduces future tax burdens. The overall message is that the new in‑plan Roth conversion offers a simpler, tax‑efficient way for federal employees to manage retirement savings and potentially save millions in taxes over the long term.

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Federal employees have finally been given a much easier way to switch tracks. Before, if you wanted to build a Roth strategy using TSP dollars, you had to work around the plan instead of through it. There were withdrawal rules, there were rollover logistics, there was tax reporting complications and plenty of opportunities for mistake, but handled incorrectly, those mistakes could create unnecessary tax withholding issues and even penalties, but they've made some changes and now there's a much simpler option for you. You can move money directly from the traditional side of your TSP into the Roth side of your TSP. It's called an in-plan Roth conversion. So because your yearly RMDs are based on your TSP account balance, and the higher your balance grows, the larger those future RMDs become, think about your roller coaster again. The higher the climb, the steeper the drop. Bigger your traditional TSP balance becomes, the bigger the tax problem that's waiting on the other side. But here's the really good news. You don't have to stay on the default track the IRS is going to put you on. You can actually switch tracks. Instead of climbing all the way to the highest peak and dealing with the steepest drop later, you can move on to a different path. One that reduces the height of the future tax cliff. And that's where this new Roth conversion method comes in.