The Roth TSP has crossed a major milestone. Roth balances reached about $101 billion in August, representing nearly 9% of the TSP’s record $1.17 trillion in assets. About 2.9 million TSP participants, roughly 40% of account holders, now have money in Roth status.
The growth is significant, but the more important question for federal employees is how Roth actually works compared with traditional TSP savings.
Roth TSP vs. Traditional TSP
Traditional TSP contributions are generally made with pre-tax dollars, potentially reducing your taxable income today. You pay ordinary income tax when you withdraw the money in retirement.
Roth TSP contributions are made with after-tax dollars. You don’t get the upfront tax deduction, but qualified withdrawals in retirement, including investment earnings, are generally tax-free.
That makes the choice less about which account is universally better and more about when you want to pay the tax.
If you believe your tax rate could be higher in retirement, paying the tax now through Roth contributions may have an advantage. If you expect a lower tax rate later, the traditional TSP’s upfront deduction may be more valuable.
Roth TSP No Longer Has RMDs
Roth balances in the TSP are no longer subject to required minimum distributions for the account owner beginning at the applicable RMD age, while traditional TSP balances remain subject to RMD rules.
That can give retirees more control over when they draw down Roth money.
For someone who doesn’t need the money to cover living expenses, that flexibility can also matter when deciding which account to withdraw from first in retirement.
Roth Can Also Matter for Your Beneficiaries
A beneficiary who inherits a Roth TSP account generally won’t owe federal income tax on qualified Roth distributions, although inherited accounts are still subject to distribution rules. Many non-spouse beneficiaries generally must empty an inherited retirement account within 10 years.
So the Roth designation can affect not only how you pay taxes during retirement, but also the tax treatment of money you leave behind.
Converting Traditional TSP Money Is Different
There’s an important distinction between making new Roth contributions and converting money you already have in the traditional TSP.
The TSP’s in-plan Roth conversion option began in 2026. Roughly $1 billion has already been converted from traditional to Roth status since the option became available. The amount converted is taxable income for the year of the conversion.
That’s why a large conversion deserves more thought than simply changing where your next paycheck contribution goes. A new Roth contribution means paying taxes on that contribution today. But a conversion can make a much larger amount of previously untaxed money taxable in a single year.
The Bigger Retirement Question
The Roth TSP milestone shows how many federal employees are choosing to build tax-diversified retirement savings.
But the decision isn’t simply “Roth or traditional.” Your current tax bracket, expected retirement income, other savings, and plans for using your TSP can all affect which approach makes sense.
Schedule an appointment with a Federal Retirement Consultant (FRC®) to review how your TSP fits into your broader retirement income strategy.
