Delivered on: Thursday, January 22, 2026

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Your Guide to All Things Roth TSP for 2026

Your money going in, coming out—and how to leverage both

• DECISIONS: Striking the balance between Roth and Traditional
• CONTRIBUTIONS: Rules on limits, funds, transferring money in, and agency matching
• CONVERSIONS: Understand the new TSP Roth conversion rules for 2026
• WITHDRAWALS: Prevent surprises with RMDs, taxes, and beneficiary rules

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Prefer to read instead? A Transcript of this Webinar is Below:

Hello and welcome everyone to today's FedImpact webinar on all things Roth TSP for 2026. There are a number of changes that are happening in the TSP. We covered both of the main changes in the webinar that we did two months ago.

The November session, we went through and talked about the two big changes. I'm still going to touch on those today, but if you want those types of details, go back and listen to that full webinar that we did on those specific two changes.

But today, we're going to zoom out a little bit and talk about more of the broader sense of the Roth TSP and why you might consider it as part of your TSP investment strategy.

You guys know me, I'm Chris Kowalik. I'm the founder of ProFeds and I'm really lucky that I get to do sessions like this. And we're excited to be able to answer the questions that you have with our support team standing by for your questions today.

Your Guide to All Things Roth TSP for 2026

Today's topic, your guide to all things Roth TSP for 2026. And we're going to focus specifically on your money going in, your money coming out, and how to leverage both of them.

Agenda

I think that's going to be the underlying theme for today's material. Let's go ahead and jump into our agenda.

At the high level, these are the types of things we're going to be talking about today. We'll be talking about that decision of striking that balance between Roth and traditional and what that's going to mean for you.

Next, we have contributions. There are rules on limits to how much you can contribute, the funds that you can contribute in, transferring money in and agency matching. We're going to cover all those pieces.

Then we're going to talk about conversion. This is part of what I talked about two months ago on the November webinar, but we're going to understand the new TSP Roth conversion rules for 2026 because I think it bears repeating here.

Although I go into greater detail in the other webinar, we'll certainly touch on this topic today. And then we'll talk about withdrawals.

This is the time that you really get the benefit of the Roth TSP and that is when you receive the money. But we want to ensure that you prevent any surprises with required minimum distributions, taxes, and beneficiary rules.

Background

A little bit of background. In 1998, the “Roth IRA” was born. This is a private sector individual retirement arrangement account. And it provided this new option for retirement savings because it offered some tax-free withdrawals instead of or in lieu of upfront tax deductions.

It flipped the IRA on its head and made things work the opposite than it normally did in that type of account.

Contributions to a Roth IRA are made with after-tax dollars, but all the earnings, all the growth on the account and those what we call qualified withdrawals, we'll talk about that today, all of that becomes tax-free to you when you take the money out. That was the Roth IRA, little different than the TSP, but the concept is still the same.

In 2006, the Roth feature was made available to 401(k) employer-sponsored plans. Up until that point, only traditional 401(k)s were allowed. There was no Roth option there. And you as federal employees didn't get the benefit of Roth features until the TSP decided to add it in 2012.

There was quite a lag there of when the TSP finally adopted the Roth feature as a standard feature within the TSP account. I want to bring you into the traditional versus Roth mindset, because I can't talk about the Roth without comparing it to the traditional side of TSP. Let's jump in.

Tax-Advantaged Options in TSP (TRADITIONAL)

First up, let's talk about the traditional TSP, because again, I can't talk Roth without comparing it to traditional.

This is the account that every one of you have, regardless of what you're choosing to do with your own contributions, all of you have the traditional TSP to some degree. With the traditional TSP, here's how it works.

When the money goes into the account, you are not going to pay tax on the principle, right? You're going to save the tax today because you get to deduct that principle from your taxes in that year, which is great, right? It's a great tax perk for you.

Here's how it works on the backend though. When the money comes out, if you follow that blue box where you weren't taxed on the principal going in, but you will be taxed on it going out, I think most people realize that that's how that works.

You don't pay tax upfront, you pay tax on the back end when you take that money out. What I think a lot of people don't realize though is all of the growth on that account is also taxable.

You get the front end benefit of not paying tax on what you contribute to the TSP, but everything you take out of the traditional side of your account is going to be fully taxable to you at the time that you take the money out.

And here we're talking about taking it to spend it, not moving it to another account like an IRA. That has some different ramifications.

But in this case, once you receive the money to spend, it is going to be fully taxable to you. That's the basics of the traditional.

Tax-Advantaged Options in TSP (ROTH)

Let's move to the Roth. You're still going to have principal that you put in.

The growth is going to be whatever split that might be. If you're a really aggressive investor, that growth may be much larger than the principal. I

f you're a much more conservative investor, of course, that growth might be a little lower, but whatever that mixture is for you, let's walk through the same exercise.

When the money goes in, you don't get an immediate tax advantage. You're going to go ahead and claim that income on this year's tax return, and you're going to bite the bullet and pay the tax at that time.

It's part of your normal income. There's just going to be no deduction for you to take for this purpose. When the money comes out later, it is all going to be coming to you tax-free.

This is both the principal and the growth that comes to you tax-free. When you see it laid out like this, it may trigger some things in your mind that there's an opportunity here to take advantage of some tax-free growth long into the future if you're doing it right.

And now listen, the Roth isn't for everybody. I'm not here to give that financial planning advice, but it should at least make you curious how this may play a role in your tax life, especially in retirement.

Why Consider the Roth TSP

I want to talk about some reasons of why to consider the Roth TSP. We have the great prediction, the great tax prediction of what things are going to look like in the future. Here we have our magic eight ball. Who knows what the answer's going to be in the future, but there are a couple of things I want you to consider.

Tax Brackets

The first is, do you think tax brackets will change in or out of your favor in the future? There's something really important that I want to share with you. Here we have 2026 tax rates.

We have a progressive tax system in this country, meaning that not all of your income is taxed at the same level. Each year, there's a certain level that's going to be taxed at the 10% level, the 12%, the 22%, right? It's going to continue to go up until you hit whatever your maximum income is that you earn that year and that's the top tax bracket that you are in.

I's been a while since the tax brackets, the rates themselves have changed as far as 10, 12, 22%, right? The label that we put on the bracket.

But what changes every year is the amount of money that you earn to make you fall into that bracket. I want to be very clear. Taxes continue to change every year, even if the tax rates that we have in this country have not changed.

And so the longer you go as an employee making more and more money, the longer you are in retirement where you're continuing to support your standard of living and live the retirement that you hope for, you very well may find that you are in a very similar tax bracket, if not the same or higher in retirement.

It all depends on how you take money out of your accounts.

Your Future Tax Obligations

My next question is your future tax obligations. Will your tax obligation be higher or lower in the future? When we ask that question at our retirement workshops, the natural answer is, “Of course, I'm going to be in a lower bracket.

I'm not going to have these huge tax obligations because I'm going to be retired. I'm not going to have this salary that I've been used to paying my taxes on.

And that's a pretty common response. Most people naturally think they're going to be on a lower tax bracket and by way have a lower tax obligation when they retire.

They think they're going to owe less taxes in retirement. But here's the reality. If you intend to maintain your standard of living in retirement, but all of the assets, the buckets of money that you are pulling from are all taxable, you are likely going to be in the same tax bracket. Here's how this works.

While you're working, you have whatever pay level you're at right now, and that is your taxable income, right? Of course, you have deductions and things like that, but follow along kind of high level with me.

You've got whatever your pay level is right now that supports your standard of living. If you have that same pay level, because your standard of living hasn't changed, maybe it's even gone up since you have a little bit more time to live life, right? But now you're retired.

You have your federal pension that's going to be largely taxable. There is a small itty bitty sliver that's going to be tax-free to you, but consider the whole thing taxable for this purpose and for preparing for taxes when you retire.

Social security, despite what you've heard in the news of social security being tax-free for some people, none of those people are you guys.

You guys make too much money to have your social security tax-free. That's going to be taxable. Then we have traditional TSP. If all of your money that's coming to you is in these buckets, these are all taxable to you.

You might very well find yourself right back up at that same pay level from a tax standpoint, and you have not reduced this tax bracket that you thought you otherwise would.

Something important to think about as we're casting that vision for the future of what retirement is going to look like.

Your Future Tax Choices

Next is your future tax choices. How do your tax choices look in the future? I want to introduce this concept. If you've not heard me talk about it before, it's this concept of tax diversification.

And the idea is that you have different buckets of money that you can choose from, and each of those buckets are taxed differently in retirement, right?

One we're talking about today is the Roth TSP, right? We have traditional TSP, Roth TSP. Those are two different buckets.

There are different buckets out in the private sector that I'm not going to spend a lot of time on today, but the idea of tax diversification is that you as the participant get to choose when and how to take money from each one of those buckets based on the tax environment that you find yourself in.

Maybe you find yourself in a situation where you feel like taxes are low, right? Every administration messes things around a little bit.

If you feel as though you're in a low tax environment, maybe you don't mind taking money from taxable accounts. You might feel like the taxes are on sale when otherwise taxes are in a low state. I know they never feel low. Just roll with me here.

Next up. When taxes are high, you may want to take money from tax-free accounts like the Roth. When you get to choose, you can shape what your tax obligation is in any given year.

But when you don't have a choice, when all of the money that you get to take is all taxable to you, you are at the whim of the tax code, and that's just what it is.

There's nothing you can do about it. The key is the tax choices that we want you to have in the future, those decisions to make those available happen right now while you're still working.

You have a chance to create a choice for yourself later so that you get to control the taxes that you are going to owe or not owe at that time.

Making Contributions to Your Roth TSP

Let's talk about getting money into the Roth TSP. This is making contributions to the Roth.

Eligibility to Contribute to the Roth TSP

Let's talk briefly about eligibility. An employee is eligible to contribute to the Roth TSP while they are employed.

I think it's worth noting that once you're retired, you are no longer allowed to contribute to the Roth TSP or any part of the TSP for that matter.

As far as income requirements, we get this question a lot. There are no income limits to being able to contribute to the Roth TSP like you see out in private sector Roth IRAs.

There is a cap, a limit to the amount of income that you can make that allow you to even contribute to a Roth IRA, but that does not exist in 401(k)s, including the Thrift Savings Plan for the Roth side.

This is great news. In fact, it's really amazing news when we have somebody who otherwise could not contribute to a Roth IRA in the private sector, but in their 401(k), in the Thrift Savings Plan, they're able to contribute to this tax-free account for the future.

Contribution Limits to the Roth TSP

Next up, contribution limits to the Roth TSP. Frankly, this is the limit for all TSP, not just the Roth, but since we're talking about the Roth today, we can certainly look at it through that lens.

For regular contributions, all employees are allowed to contribute up to $24,500 per year. That is across the board, no matter your age, everyone can contribute at least 24,500.

Catch-up contributions got a little complicated last year when all of this went into effect, and that is that employees who will be between 50 or 59 or 64 or older by December 31st of this year, you can contribute an additional $8,000 a year on top of the 24,500 that all employees are allowed to do.

If you happen to be, and this is where it got a little bit more complicated, if you happen to be aged 60 to 63 on December 31st of this year, you can contribute an additional $11,250 on top of the 24,500 that every employee can contribute.

It's important to know that once you turn age 64, so the year that you will be 64 on December 31st of that year, you want to make sure to lower your contributions back to that 8,000 level, the catch-up contribution level so that you don't trip that wire and end up in TSP jail having to fix that problem.

But overall, these are the contribution limits. Most of you are probably familiar with these limits by now, but this gives you an idea of the total dollar amount that could go into the Roth TSP.

Catch-Up Contributions for “Higher Earners”

I want to talk briefly about the catch-up contributions for higher earners. This is something that I went into far more depth in the November webinar, but it bears repeating here.

And that is prior to 2026, federal employees could freely choose where their contributions were going to be deposited, either on the traditional or Roth sides of their account or some sort of mixture that they choose.

It didn't matter what their income was. They had free choice, traditional Roth or some sort of mixture prior to this year. But starting in 2026, same thing for employees who made less than 150,000, it's as if nothing's changed, right?

You can choose whatever combination and mixture that you wish between traditional and Roth contributions. But if you made 150,000 or more in 2025, if you choose to do catch-up contributions, that is anything over 24,500 going into the TSP, that money will automatically be deposited into the Roth side of your account.

You make your contributions, pay period one, two, three, four. When you hit 24,500, the TSP is going to flip that switch. Everything from that point forward goes into the Roth side of your account, whether you like it or not.

It's an important distinction this year, and I think it was worth putting here, but if you want to see more of the nitty-gritty details, go check out that webinar.

Agency's Matching Money

Let's talk now about agency matching money. Boy, do we get a lot of confusion about this. Let's set the record straight. When an employee receives matching money from their agency, it will always be deposited into the traditional side of that employee's account, even if the employee chooses to put all of their own contributions into the Roth side of the account.

You do not give up anything. If you decide to go all Roth on the TSP contributions that you are making, your agency is still going to match you up to 5% of your salary. The difference is the money your agency's putting in will always go into the traditional side of your account.

It's also worth noting that the amount that the agency contributes on your behalf, that does not count against your annual contribution limit, right? That 24,500 that we mentioned before, or the 8,000 or the $11,250 catch-up, the agency contribution has no effect on that number.

That is how much you personally are allowed to contribute to your account. We'll talk about funds here in just a moment, but when the agency match gets deposited into the account, it's going to be invested in the same funds that you have set for your own contributions.

You can't say, “I want my agency's money to go into the G fund, but I want my own money to go into the C fund,” for instance.

Whatever the percentage is across the funds that you decide to put your own money when it goes in, that's also how your agency's match is going to be treated.

Choosing Funds and Tax Brackets

Speaking of funds, let's talk a little bit about the funds and the tax brackets and the decision points that you have when you are putting money into the TSP.

Two decisions for NEW money going into TSP

We're going to start with acknowledging that there are two decisions that you need to make with respect to how new money goes into the TSP. They're the funds, so that is the G, F, C, S, and I, and the tax bucket.

Is it traditional, Roth or some sort of mixture? We're going to break these down to try to explain the different layers of these decisions and how they work.

We're going to start by investing $1. And I just want to show you how these two decisions get broken down. We're going to start with the funds. Remember, G, F, C, S and I.

We have to figure out what kind of mixture we're looking for. I've chosen this mixture simply for illustrative purposes. This is not the intended recommendation that I have for any of you.

It's just for illustrative purposes here, but this employee has chosen to put 20% to the G, 15 to the F, S and I, and 35% into the C fund. So for every dollar that goes into the TSP, this is the mixture of how it's going to be divided.

I think that part is pretty standard for people. I think they all get the different funds and how you're investing. This is where things get a little complicated though, and that is the tax buckets.

Let's say that this employee decides that they want to put 75% of their contribution to traditional and 25% of it to Roth. It is simply cutting across all of the different funds. We've got the G, F, C, S and I breakdown.

If we look just at the G fund, for instance, we know 20% of our dollar is going to go into the G fund. 75% of that is going to be labeled traditional money, 25% is Roth money.

Same thing with F, C, S, and I. The first decision is what fund all of this money is going into. The second decision on tax buckets is the label that the IRS puts on that money to know how it's taxed.

If we end up with $100,000 in the G fund and we're at this 75%, 25% ratio, 75,000 is going to be traditional, 25,000 would be Roth.

And that would be the same for every single one of these funds. As you have brought more money into the account and chosen traditional or Roth, it's filling up almost many buckets inside the G, F, C, S and I that hold traditional money versus Roth money.

Again, two really, really important decisions for any new money that you have going into TSP. Hopefully, this helps clear up how all of that works.

Let's talk about moving money into the Roth TSP. We got a little moving cart. We're ready to move around some money. Let's see how this goes.

Moving Money Into the Roth TSP

Let's talk about moving outside money into the Roth TSP. You are permitted to transfer money into the Roth TSP from other qualified sources.

And when you do that, it does not count against your annual contribution limits, right? The 24,500 or some of that catch up if you qualify for that.

But these are the only types of accounts that you're allowed to put into the Roth TSP. That is a Roth 401(k), a 403(b), or a 457(b).

Most of you don't have the 403 and the 457s, those types of accounts, but if you've been with another employer, maybe you have a 401(k) out there and you're thinking, “Well, gosh, I have this with my old employer.

Maybe I can just roll it right into the Roth TSP.” And the answer is yes, you can. Should you? I don't know. But yes, you're allowed to do that. I think it's worth noting the account style that's not on this list is a Roth IRA.

If you have a Roth IRA out in the private sector that is not associated with an employer-sponsored account like the 401(k), 403(b) and 457 accounts, you are not allowed to take that Roth IRA and move it inside the TSP. It's just not an allowable plan style.

I hinted at this a moment ago, but I want you to consider if you've got a Roth 401(k), 403(b) or 457 and you're considering putting that into the TSP, I want you to think long and hard about leaving the money in these separate accounts. And the reason is that when you leave it in the Roth 401(k), 403(b) or 457, you actually have access to it right now.

I'm not suggesting you do access it, but it's there if you need it in an emergency or if you decide, you know what, it's worth the tax hit, the 10% early withdrawal that I'm going to have on this thing if I take it prior to 59 and a half because I want to start a new business or do something for my kids, whatever it might be, your reasoning for it.

I like the idea that we have access to money and if you choose to move those accounts into the TSP, you have to wait until 59 and a half to access it or retire to be able to do that.

Something to think about. Again, not a recommendation, but I want you to at least think through that whole process before you combine money inside the TSP. And the same concept is true for military TSPs going into federal TSP.

If you're retired from the military, you have access to that TSP account. Again, not saying that you should access it because there will be some penalties to it, but the idea that you have it available to you is pretty comforting to a lot of people.

Once you bring that bad boy into the federal TSP, you're toast. You cannot access it until you reach that 59 and a half mark or retire.

Converting Traditional TSP to Roth TSP

We're going to get into something a little bit more complicated and that is converting traditional TSP to Roth TSP. This is something new that is happening in 2026.

In fact, it won't be until next week that supposedly the TSP is going to release this feature to be able to happen for plan participants. Let's talk about some of the ideas of Roth conversions and how this works inside the TSP.

What is a Roth conversion?

This is a tax strategy to take money that's currently categorized as traditional and make it Roth. That is the simplest way to describe a Roth conversion. Money you've already poured into the account and now you're like, “Oh, this Roth feature is available. That's pretty cool.

I want tax-free income in retirement.” Cool. You're going to have to go through this process to make it Roth. In order to do a Roth conversion, you must claim the amount that you're converting as taxable income this year.

If you want to convert 100,000 from traditional and make it Roth, you have to claim that $100,000 as additional income this year, which very well may put you into a higher tax bracket.

It's why we really caution employees from doing Roth conversions without kind of seeing the bigger tax picture, because you may end up really regretting that conversion and there's no do over at that point.

Once the money's converted You can't ever put it back. The idea of the Roth conversion is after that conversion takes place, that money that you just moved from the traditional column to the Roth column is now going to grow tax-free moving forward, which is the whole purpose of the Roth.

The Roth conversion itself can be a super sophisticated tax strategy. There are a lot of amazing things that can happen with Roth conversions, but they're typically done with the financial professional.

Prior to this year, you were not allowed to do this inside the TSP. You had to go to the private sector to be able to do it, and chances are you were working with a financial professional who is guiding you through that process.

My fear is that with the Roth TSP conversion, the in plan conversion that they're allowing starting this year, is that people are going to do Roth conversions and not fully understand the tax ramifications on many levels if they're not working with a financial professional.

If you are interested in doing something like this, you need to talk to somebody who understands all of the rules. I encourage you, if you're here on this webinar live with us today, go down to the bottom of the screen.

You're going to see a link. If you want to be introduced to a financial professional who's in our network that we train and support on a daily basis, you have an opportunity to ask for that introduction, to be able to do these types of strategies and make sure that you don't get yourself in some hot tax water with the IRS without realizing that you're doing it.

What has Changes with Roth Conversions

Prior to this year, employees were not allowed to do this inside the TSP. They had to move their money out to a private account and then Roth convert it from there.

But here next week, at the end of January in 2026, the TSP will start to allow those in plan conversions to ultimately change how the money you already have in the traditional account will be taxed in the future.

But again, this is far more complicated than it appears. And I'll share with you a couple of reasons why.

Paying the Taxes on the Roth Conversion

The first is, when you got to pay the tax on the conversion, you're going to have to pay that tax that you owe with money that is outside of the TSP. Specifically, it needs to be money that you've already paid taxes on.

If you have money sitting in your checking account, for instance, you've already claimed that as income, it's sitting there and you can do with it as you please, but you can't take money from an account like an IRA to pay the tax. You also cannot take more money from the TSP to pay the tax.

This is a big gotcha moment and we'll see how clear the TSP is on the Roth conversion process as they're taking employees through that, how clear they are in illustrating how much tax that employee needs to be ready to pay come April when they go to pay their taxes.

The TSP is not going to withhold any taxes from the conversion. Employees are 100% responsible for paying that to the IRS. And spoiler alert, the IRS doesn't like to be caught off guard and have you pay your whole tax bill in April. They want to see quarterly payments.

If you do a conversion in January of a given year, you are going to want to get some quarterly payments to the IRS so that come tax time when you go to file your taxes, you're not hit with an underpayment penalty at that time.

It's also worth noting that when this happens, when you do a Roth conversion and you now claim an extra amount of income during this Roth conversion process, that may very well affect your Medicare Part B premiums if you're 63 or older.

If you're in Medicare Part B or plan to enroll in Medicare Part B when you turn 65, if you are doing a Roth conversion at 63 or later, it will likely affect your Medicare Part B premiums.

I won't go into the details. Again, I go far more into the details than many of you want on that webinar that we did in November. If you want to get into the nitty-gritty of that, go back and watch that webinar.

But this is a super important thing that is a huge surprise to people if they don't understand how Roth conversions work. Again, one more reason you need a financial professional in your corner to make sure that you're doing this right.

The 5-Year Rule for Roth Conversions

Next up, this is another part of the complication. There is a five-year rule for Roth conversions. It's different than the other five-year rule that you might know of with respect to your other parts of your TSP.

We'll talk about that here in a moment. But specifically for the Roth conversion, every time you do a Roth conversion inside the TSP, you start a new five-year clock for that specific portion of the money.

That clock starts on January 1st of the year in which you did the conversion. Even if you did the conversion December 31st, it still counts as if you did it on January 1st. That works in your favor.

If you decide to make a withdrawal of the money that you converted within five years of the time that you converted it, you have to pay a 10% early withdrawal penalty to the IRS.

Because there are certain rules for what the IRS is going to allow you to do and you unfortunately are likely going to have a penalty. There are some exceptions that apply, but they're not all that common.

This rule only applies to money that you converted. It doesn't apply to the growth on that money, but the converted amount itself.

How Roth TSP is Paid to You

Let's talk about how Roth TSP is paid to you. Presumably you're retired, now you're starting to draw some of this money. How does that work?

Choosing How to Take TSP Money in Retirement

First, you're going to choose how to take TSP money in retirement. When it comes time to take the money out, you get to choose, do you want it to come from your traditional TSP, from your Roth TSP, or some sort of mixture between the two?

This is a relatively new rule. For many, many, many years, it had to be a prorated amount based on the percentage of the balance that you have between traditional and Roth. That is no longer the case. You get to pick and choose which bucket you want it from.

That money that you take can either be money that you're taking in cash to go live your retirement, or you could transfer it to a private account. Coming out to an IRA, for instance, a Roth IRA, a traditional IRA, whatever that might be.

It is important to note, if you transfer your Roth TSP to a Roth IRA, you don't have the opportunity to put the money back in the TSP. You do with traditional accounts, but you don't with Roth.

And so just something to note that is a one-way decision that you are making with respect to the Roth TSP.

Receiving Roth TSP Money in Retirement

Receiving Roth TSP money in retirement. Based on one of the very first slides that I showed where we showed what it looks like when money goes into the Roth and how it comes out and into traditional and how it comes out, like the whole purpose of the Roth TSP or any of these Roth-styled accounts is to receive money in retirement and not have to pay tax on it when you get it.

That's the whole purpose. But the IRS has rules that have to be met to allow the money to come out to you tax-free. Here we're not talking about the Roth conversion rule that we talked about a moment ago.

Here we're talking about regular Roth that you contributed directly to TSP, to the Roth side of the TSP, and then the money coming directly out of that account. Most of you know the traditional TSP has a special … We call it the rule of 55, which allows employees to access those funds prior to 59 and a half and avoid any IRS penalties called an early withdrawal penalty.

It is important that you realize that these special exceptions do not apply to withdrawals from the Roth TSP. There is no rule of 55. For any of our special provision employees who are listening, law enforcement, firefighters, air traffic controllers, you guys know you have some even more special rules.

They don't apply here. Roth TSP is its own little beast and we need to make sure that we're looking at the right rules so that we get what we're intending out of this money.

The 5-Year Rule for Roth TSP Earnings (the growth)

Here's the five-year rule for Roth earnings. And when I say earnings, I'm talking about the growth on the account. I don't want you to confuse it with earnings like your income. This is the earnings on the money that's inside the account, which is the growth. Roth earnings aren't taxed as long as the distribution is what we called qualified.

Those Roth earnings will become qualified and they can be withdrawn tax-free when both of the IRS requirements are met. The first is five years have passed since January 1st of the calendar year in which you made your first Roth TSP contribution.

The second rule is you are aged 59 and a half or older. You have a permanent disability or are deceased. That kicks in for some beneficiary issues. With this set of rules that the IRS has, it is important that you meet both of these so that you don't trigger any tax or penalties on the growth when you withdraw the money.

I want to get into some of the details here. I'm going to do this one group at a time. When you receive money from the Roth TSP, this is money you directly contributed to the Roth TSP, not converted, but you decided from your paycheck it was going to the Roth TSP and now this money is coming back to you.

To not pay tax on the growth, on that money off to the right-hand side, you'll see as long as you're at least 59 and a half when you receive the money and you meet this five-year rule.

The five-year rule for this type of account is that five years have passed since January 1st of the year you first contributed to the Roth TSP. That was the rule we saw in the prior slide. That one's pretty simple.

The Roth TSP conversion. This is money that was originally traditional TSP that you chose to convert to Roth TSP. There's a different five-year rule here. Five years have passed since January 1st of the year you converted the traditional TSP to Roth TSP. And every time you do a conversion, it has its own five-year clock on that particular part of the money.

If this year you decide to convert 50,000, five-year clock, next year you decide to convert another 50,000, a new five-year clock, again, on that particular bucket of money that you have converted.

Next up is a Roth IRA. Here we're talking about the private sector. And the reason I'm talking about this is many of you may choose to transfer money from the Roth TSP to a private Roth IRA.

You have way different opportunities out there as far as managing those types of accounts and how you can withdraw them and all of that. If you choose to do that, the five-year rule that you're looking at at that point is that five years have passed since January 1st of the year you first contributed to any Roth IRA.

You'll notice it doesn't say TSP in here. If you do not currently have a Roth IRA, but you like the idea, or at least the choice of being able to take your money from the Roth TSP and move it to a Roth IRA to have some freedom of how you're going to utilize it.

If you don't have a Roth IRA right now, you're either going to be forced to leave the money in the TSP so that you don't trigger taxes on the growth, or if you move it out to a Roth IRA at that point, the five-year clock begins and you have to leave the money alone for five years.

The way to avoid this conundrum that you're going to find yourself in is to establish a Roth IRA account now. It becomes a bit of a placeholder because remember, it's the amount of time that have passed since you first contributed to any Roth IRA. It doesn't have to be the one you transferred to.

It's just any of them. You going ahead and getting a Roth IRA established now allows that five-year clock to start and that way you have the freedom later if you choose to move your Roth TSP to a Roth IRA, you're not bound by any new five-year rule. That rule has already been satisfied because you've held that Roth IRA for many years.

Next up is the Roth IRA conversion. This is what had to happen before the TSP made conversions possible inside the TSP. This is money that was originally traditional TSP money that you transferred to a private traditional IRA and then converted to a Roth IRA in the private sector.

If you did that, the five-year rule looks like this. Five years have passed since January 1st of the year you converted the traditional IRA money to Roth IRA. It's going to have its own five-year clock. Again, every time you do a conversion, that particular bucket of money has its own five-year clock that you have to wait.

Opening up a Roth IRA right now in the private sector doesn't help with a Roth IRA conversion because the rule is based on the time in which the money is converted.

The prior line here where it just says Roth IRA, that rule is completely different than if it's a Roth IRA conversion in the private sector.

You can see there are a lot of complexities with these different choices, even more of a reason to have a financial professional on your side to double check that you are doing the right things and not putting yourself into some bad situations with the IRS and surprises that you'd otherwise love to avoid.

Required Minimum Distributions

We get this quite a bit from federal employees asking how this works with the Roth. Normally RMDs, required minimum distributions, the IRS says, “Hey, by the time you're 73, we're going to require you to start taking some money out of certain types of accounts.”

RMDs are required on the traditional TSP and traditional IRAs. They're not required on Roth TSP and Roth IRAs. This rule changed a couple of years ago.

It was a very welcomed rule change because I think Feds got themselves in a situation where if they had TSP, both traditional and Roth money, when they had to take RMDs, it was based on the entire account, not just the traditional side.

That rule is no longer there, which is really great, but it is important to realize that not having required minimum distributions on Roth styled accounts allows your money to continue to grow until you need it.

You don't have this false third party telling you you have to now take the money unnecessarily, right? Somebody who doesn't know you, doesn't know how much you need, the IRS is going to make you take money out whether you like it or not from traditional styled accounts.

But Roth styled accounts, you can let that thing ride. If you don't ever touch it, that money is going to be passed to your beneficiaries. And so we're going to talk about that next, but RMDs, super, super important.

Although they don't apply to Roth accounts, I felt it was important to put it in here to make that distinguishment of another reason why you may consider the Roth TSP as opposed to the traditional TSP because when we're looking long term, you're going to have to start depleting that traditional account at a rate higher than you otherwise might want to take from the traditional account and pay taxes at that time.

But Roth, you get to totally avoid all of that.

How Roth TSP is Paid to Your Survivors

When we're thinking about leaving your Roth TSP to your beneficiaries, any money that you have in the Roth TSP when you die is paid to your beneficiaries tax-free.

This includes both the principal, that is the money that you put in, and the growth on that money. And this is true until the last dollar is taken by your beneficiaries.

If it's someone other than your spouse, maybe your children, maybe your parents, maybe your siblings, whoever it is that you gave the money to, they're going to be required to move money out of the TSP and they have to receive all of the money within 10 years of your passing. And that is essentially the IRS's way of stopping the tax-free growth.

They're going to make the tax-free growth stop at year 10. They're not going to allow that money to sit there any longer. The participant has to take the money out whether they need it or not. Of course, they're not going to be taxed on it, but they have to take the money out of the account.

Your spouse has a different story though. They're allowed to either leave the money in the TSP or move it to a private Roth IRA account. They don't have that same 10-year requirement to take the money out as a non-spouse beneficiary.

In fact, they can keep that Roth IRA money all the way until they die. And all that money's going to continue to grow in a tax-free environment, really for both parties.

The non-spouse beneficiary and the spousal beneficiary, the only difference between them is that that non-spouse beneficiary has to take all that money within 10 years, but your spouse does not.

A great opportunity to be able to leave tax-free income for others is just a matter of how quickly they're going to have to take that money and where it can live.

The ONLY Guarantee From the IRS

Here's the guarantee that I talked about at the very beginning of today's session. In the financial planning world, whoo, they don't love us talking about guarantees, but I have a really important one for all of you.

The only guarantee that you get from the IRS is that whether you choose to invest in the traditional TSP or the Roth TSP, you are guaranteed to pay tax on the principal.

That is the amount that you put in. The real question though is how do you want the growth taxed when the money eventually comes out? Do you want all of it to be taxable? Do you want all of it to be tax-free?

You have a choice, but the choice that you make today while you're still employed of whether you contribute to the Roth or the traditional sides of your account or some sort of mixture between the two is going to determine the buckets of money that are available to you and the tax diversification that you can create in your financial life in retirement.

the Roth is a pretty amazing program, both in the private sector and in employer-sponsored plans like the TSP because of the tax-free growth that is available, that environment that it grows in and what it allows you to do, the freedom that it allows you to have in retirement.

I want you to really ponder this. If you've not committed to the Roth TSP and you're wondering, “Is this the right thing for me?” I want you to give this a lot of consideration.

You need to look at the whole picture, right? You know that if you're all traditional contributions right now and you switch those to all Roth, you're going to have probably a little bit of a hit to your normal take home pay because now, more of that money's going to be taxable, but that in counterbalance to what things look like much later in life is something for you to seriously consider.

And I know on this webinar, we have lots of you from the IRS. We have some of you from the Securities and Exchange Commission. You all are always worried about giving advice to people. This is not advice.

This is you having the awareness of the options that you have so that you can make the decision that's most aligned with what it is that you want later. I really encourage you to give this some serious thought.

And if you're already contributing to the Roth TSP and you're deciding, do I do more? Do I do less in the traditional? What's the amount? Should I do those catch-up contributions?

All of that has to be taken into account when you're thinking of how big the bucket of money is later that you're going to be able to pull from.

Wrap-Up & Next Steps

The wrap-up here, the Roth TSP is a vehicle that can help an employee create tax-free income for the future. Of course, I think we beat that horse today.

are a very real concern for retirees and deserve your attention long before you ever retire. If you wait to realize you have a tax problem in retirement, it is too late to fix it. You have to be looking now while you're still employed, while you still have agency over the decisions that you are making with respect to the buckets that you are contributing to from a tax standpoint while you are employed.

And seeking help from a financial professional to discuss the tax implications and that bigger financial picture that you have will make sure that you've given proper consideration on any tax issues that you may face both now and in the future.

And I would offer to you, you deserve to give some sincere thought to your future tax situation. If you avoid it, it's only going to make it worse. You have a chance now, pull that head out of the sand, look the tax situation, the tax consequences right in the eyes, and be able to make a decision or a series of decisions that put you in the driver's seat from a tax standpoint in retirement.

The very best way that we can help federal employees prepare in the fullest sense for retirement is through our retirement workshops. Again, about a third of you listening to today's session have been to our workshop, and so kudos to you.

Many of you might feel like you need another pass through it if it's been a while, but for all of you who have not attended a workshop, I encourage you to consider finding an in-person training session that's close by.

There is no cost for you to attend. These are sponsored sessions, so there's no out-of-pocket expense to either you or your agency for you to be able to attend this session. There we cover all the federal benefits topics and the decisions that you are going to be making.

And here's probably my favorite part of the workshop, and that is that one-on-one help is available afterwards because we've all been in situations where we're in group training and we see examples and we see the rules and we're always wondering like, how does this apply to me personally?

What do my numbers look like? And that one-on-one help is what allows the FedImpact retirement report to be provided to you and get your individual questions answered.

You can see all the details of the FedImpact workshops by going to FedImpact.com/Attend. You'll see all of the cities and dates that are available for registration so you can pick a date and location that's close to you.

I want to thank you for joining us. We love the work we do with federal employees and helping to bring some simplicity to otherwise really complex situations.

I know the government doesn't make it easy for us to explain things simply because they've added a lot of complexity to these benefits, but I hope today's session was really helpful to you.

As a reminder, you can find a workshop by going to FedImpact.com/Attend and to register for the next webinar and see all of the replays of past webinars, you can go to FedImpact.com/Webinar. Thank you all so much. We'll see you next time.

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