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Should You Convert to a Roth IRA in Retirement? Timing, Income, and Penalties All Matter More Than You Think

Missy E
November 14, 2025

Key Takeaways

Converting to a Roth IRA in retirement can create tax-free income later, but only if timed carefully in relation to your tax bracket, Medicare premiums, and Required Minimum Distributions (RMDs).
Poorly timed conversions can trigger unintended taxes, increase Medicare costs, and even reduce eligibility for certain credits or benefits.

Why Public Sector Retirees Are Considering Roth Conversions

For many public sector employees, retirement comes with multiple income streams: a FERS or CSRS annuity, Thrift Savings Plan (TSP) withdrawals, and Social Security. Managing these accounts efficiently is crucial to avoid unnecessary tax burdens. A Roth IRA offers a unique advantage—tax-free withdrawals in retirement. But getting money into a Roth IRA requires a taxable conversion if it’s coming from a traditional account.

This taxable event needs strategic planning. When done well, Roth conversions can lower lifetime taxes, provide more flexibility in RMD planning, and offer estate planning benefits. But when done haphazardly, they can backfire.

What Is a Roth IRA Conversion?

A Roth conversion means moving funds from a pre-tax retirement account (like a Traditional IRA or TSP) into a Roth IRA. The amount you convert is treated as taxable income in the year of the conversion.

Once inside the Roth, your investments grow tax-free, and qualified withdrawals are also tax-free. Unlike Traditional IRAs or the traditional portion of the TSP, Roth IRAs are not subject to RMDs, making them an attractive tool for managing retirement income.

The Timing Question: Why It’s Not Just About Age

1. Window Between Retirement and Age 73

In 2025, the RMD age is 73. If you retire before then, you may have several low-income years before RMDs and full Social Security benefits begin. This window is ideal for conversions:

You’re likely in a lower tax bracket
You haven’t started RMDs yet
You can control how much income you generate each year

Using this period strategically can let you spread out conversions over several years, minimizing the risk of jumping into a higher tax bracket.

2. After RMDs Begin

Once you turn 73 and RMDs kick in, you’re required to take taxable withdrawals from traditional retirement accounts. These amounts cannot be converted to a Roth; you must take the RMD first. Only additional withdrawals can be converted.

This makes post-73 conversions less attractive unless your income needs justify it or you’re facing significant future tax increases.

3. Medicare Premium Considerations

Medicare Part B and Part D premiums are income-dependent. In 2025, higher-income retirees (those with MAGI above $106,000 for individuals or $212,000 for couples) pay surcharges called IRMAA. Roth conversions increase MAGI and can push you over these thresholds.

Always factor in whether a conversion might:

Push your income into a higher tax bracket
Increase Medicare premiums for the following year
Affect tax credits or other income-sensitive benefits

How Much to Convert—and When

1. Fill Your Tax Bracket

A common strategy is to convert up to the top of your current marginal tax bracket. For example, if you’re in the 22% bracket and have room before hitting the 24% bracket, you can convert just enough to stay below that next threshold.

This helps minimize the taxes due now while still moving money into a tax-free vehicle for the future.

2. Convert Gradually Over Time

Spreading conversions over multiple years allows you to:

Manage tax impacts
Avoid IRMAA surprises
Coordinate with other income events, such as starting Social Security

Many retirees convert smaller amounts each year from retirement until RMDs begin at age 73.

3. Pay Taxes from Non-Retirement Assets

To maximize the value of your Roth conversion, pay the tax bill from outside funds—not from the converted amount. Using part of the conversion to pay taxes means you’re reducing the long-term tax-free growth potential of the Roth.

The TSP Factor for Public Sector Employees

The Thrift Savings Plan allows you to roll over funds into a Traditional IRA or directly convert into a Roth IRA. However, the TSP doesn’t support in-plan Roth conversions in the same way private 401(k)s might. That means you’ll need to roll your TSP into an IRA before converting to a Roth.

Here’s the general sequence:

Retire and separate from service
Roll your traditional TSP into a Traditional IRA
Convert some or all of that IRA into a Roth IRA

Be mindful of the timing. Each step can have tax and administrative implications. For example, you’ll want to avoid triggering a pro-rata rule issue if you already have a mixture of pre-tax and post-tax IRAs.

Roth Conversion Benefits Specific to Government Employees

Public sector retirees often face complex income layers. These can make Roth conversions especially beneficial in ways that go beyond general retirement planning.

Avoid stacking tax burdens – FERS/CSRS pensions are fully taxable. Combining those with RMDs and Social Security can create an income spike. Roth conversions before that spike can help balance income levels.
Reduce future RMD size – Lowering the balance in Traditional IRAs and TSP reduces your future RMDs, which in turn lowers your taxable income later.
Estate planning advantages – Roth IRAs are not subject to RMDs and pass to heirs income-tax free, offering more flexibility in legacy planning.

Pitfalls to Avoid

1. Converting Too Much in One Year

Large conversions can push you into a higher tax bracket or create a sudden IRMAA surcharge. It’s tempting to convert a lump sum, especially if the market dips, but the tax consequences may outweigh the benefits.

2. Ignoring State Taxes

Some states tax Roth conversions, while others don’t. If you’re planning to move in retirement, the state you live in when you convert can make a noticeable difference.

3. Overlooking the Five-Year Rule

Each Roth conversion has its own five-year clock. If you withdraw earnings before five years have passed, you may owe taxes and penalties—even if you’re over age 59½. This matters if you anticipate needing funds shortly after conversion.

4. Failing to Coordinate with Other Income

Whether it’s Social Security, a part-time job, or spousal income, additional earnings can interact with a conversion and magnify tax exposure. Careful coordination is essential.

5. Not Reviewing Annually

Your income, tax laws, and financial goals change over time. Roth conversion decisions shouldn’t be “set it and forget it.” Annual reviews help adjust the strategy as needed.

Who Should Seriously Consider a Roth Conversion in 2025?

You may be a strong candidate if:

You’ve recently retired and expect lower income for the next few years
Your TSP or IRA balance is significant and will generate large RMDs
You have sufficient cash to cover the tax bill from outside your retirement account
You want to lower your heirs’ tax burden by leaving tax-free assets
You’re concerned about future tax rate increases

Situations Where a Conversion Might Not Be Worth It

Roth conversions are not a fit for everyone. They may not be suitable if:

You need the converted funds soon and can’t wait five years
You’re already in a high tax bracket and expect lower rates later
You’re close to IRMAA thresholds and can’t afford premium hikes
You don’t have non-retirement funds to pay the taxes due

Strategic Flexibility Is the Key to Long-Term Tax Savings

No two retirement situations are identical. Even among public sector retirees, income sources, living expenses, and health care needs vary widely. A thoughtful Roth IRA conversion strategy can provide decades of tax-free income and more control over future distributions—but only if it’s coordinated with your broader financial plan.

Before moving forward with a Roth conversion, weigh the tax implications, income timing, Medicare costs, and legacy goals. Done right, it’s a powerful tool. Done hastily, it can become an expensive misstep.

Speak with a licensed agent listed on this website to get professional advice tailored to your retirement timeline, income sources, and tax planning goals.