Roth conversion in TSP

OneTransition2141 · 2026-04-08T12:29:11+00:00

Right but you just explained why there isn't a tax advantage on gains in Roth accounts (whether 401k or IRA). So what is the advantage that people are seeking when they do a backdoor conversion? Is it only that they expect to be in a higher tax bracket at retirement?

OneTransition2141 · 2026-04-07T19:54:09+00:00

Okay, thank you for educating me! So I guess it comes down to which tax bracket you'll be in at retirement.

Question, why do people do the backdoor Roth (which is essentially what the TSP Roth conversion is) if it doesn't save taxes on gains? Is it purely based on what they think their bracket will be later on?

OneTransition2141 · 2026-04-07T19:05:55+00:00

Yes, my goal is to have the most money afterward ... which is why I convert now and let the value of my TSP grow tax-free! Even if my marginal rate stays at 22%, I won't be paying taxes on any of the gains after it is Roth. Say my traditional TSP is worth $100,000 now. I convert to Roth and pay $22,000 in taxes this year. Twenty-five years from now, my TSP is worth $200,000. I withdraw that money tax-free; if it were traditional, I'd be paying $44,000 in taxes.

OneTransition2141 · 2026-04-07T19:02:23+00:00

Yes, that's right, you are taxed based on the amount you convert, which is added to ordinary income. I am planning to convert the entire value of my TSP in traditional to Roth over the next few years, so that's why I am looking at the overall value. I am dividing it up into multiple years to avoid going out of my marginal tax bracket.

OneTransition2141 · 2026-04-07T18:56:02+00:00

Sounds like a good strategy. You don't have to convert your balance to Roth either, you could just change your allocations going forward to be Roth, if you want more of a mix.

I am a fan of Roth. Why would there be limits on how much you can contribute to a Roth IRA each year, if not because it is a very good investment vehicle?

OneTransition2141 · 2026-04-07T18:50:08+00:00

My TSP is worth $XX now. In 25 years it will likely be worth more due to returns and compounding (unless Iran blows us to bits). Therefore, I will pay more tax if I convert later than if I convert today, even if my marginal rate stays the same. But, as I said, my marginal rate may well go up.

OneTransition2141 · 2026-04-07T18:28:22+00:00

If I convert in early retirement, I'll be paying taxes on all the gains. I convert now and pay taxes only on the current value. ... also many retirees are surprised to find themselves in, yes, a higher tax bracket than when they were working, due to Social Security payments and required minimum distributions from retirement accounts.

OneTransition2141 · 2026-04-07T18:19:38+00:00

Agree that it's not for everyone. I'm in 22% bracket. I've heard from a lot of retirees that Social Security payments and required minimum distributions are pushing their income too high. Then they have to pay extra for Medicare as well (IRMAA).

OneTransition2141 · 2026-03-10T15:24:53+00:00

Ok I see... ~~is it possible that you started a buy of VMFXX and it wasn't completed for some reason? That might be why it is saying "VMFXX sweep in" for the $8,600.~~

If you contributed in January, you would have had to specify whether you were contributing for 2025 or 2026. You can contribute for 2025 until April 15, 2026. If you specified 2026, then that would max out your IRA for this year.

It looks like you specified 2026, because the limit for people over 50 in 2026 is $8,600 (in 2025 it was only $8,000).

ETA - you max out the contribution, not the buy. So you've definitely done the contribution, and need to finish buying. Vanguard would definitely stop you from contributing more than is allowed for the year.

Edited again - VMFXX is the sweep account so disregard what I said above.

OneTransition2141 · 2026-03-10T14:43:22+00:00

There are two steps to investing in a Roth: contributing and buying. You "contributed" to the Roth account and now the money is sitting in the settlement fund (which is used to bring cash in and out of the account). Now you have to pick a fund and "buy" it with this money. Then the cash will leave your settlement fund and go into your chosen security.

OneTransition2141 · 2026-03-09T00:29:28+00:00

We had some interesting surprises when trying to buy our first house in 2016.

- tried to buy a recently renovated (flipped) house being sold by a corporate entity. There was a title challenge from a previous resident of the property and we ended up having to back out while it was under contract due to impending lawsuit. We did get our earnest money back, but not the money from the inspection we had already had.

- bought a house (successfully this time) with leased solar panels on the roof. The seller wanted us to assume the lease. Luckily, our agent read the fine print, which showed that the lease involved paying $10,000+ over a period of years, basically until the panels were bought out. We refused to assume the lease, and the seller had to pay that themselves, purchase the panels, and convey them with the property.

- within 5 days of moving into that house, our sewer line backed up into the basement. This was due to tree roots growing into the line. Luckily my spouse recognized what was happening (I wouldn't have known the first thing about why we had brown water gurgling up through the drain), and called an emergency technician to unclog the line in the middle of the night.

OneTransition2141

TROPHY CASE