In this episode, Ed and Dan take a deeper look at the tax consequences of Roth TSP in-plan conversions beginning in 2026, with a focus on how the IRS “five-year rules” impact withdrawals. The discussion breaks down how traditional vs. nondeductible IRA money is taxed at conversion, how the Roth TSP “bucket” system works, and why timing matters when accessing converted funds and earnings. Listeners will gain a clearer understanding of how taxes, penalties, and holding periods interact after a conversion.
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FedLife Podcast (Ep.166): Roth TSP 5-Year Rules & Tax Implications
Join us as Dan and Ed explain how Roth TSP in-plan conversions are taxed and what federal employees need to know before moving money into Roth accounts.
In this episode, you’ll learn:
• How Roth TSP in-plan conversions are taxed in the year they occur
• The difference between deductible and nondeductible IRA money at conversion
• How the Roth TSP “bucket” determines taxable vs. tax-free withdrawals
• The two separate five-year rules and why they matter
• How early withdrawals can trigger income tax and penalties
• Why timing and liquidity are critical before converting traditional TSP funds
• How pro-rata taxation applies to Roth TSP earnings in certain cases
• Key differences between Roth IRA and Roth TSP withdrawal rules
Source Article: https://stwserve.com/understanding-the-five-year-rule-with-respect-to-roth-tsp-in-plan-conversions/
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