Separating, or out for years and never touched it? See how much Traditional TSP you can convert to Roth cheaply in any low-tax year, whether your TSP is in the right place, and how the keep / roll / convert decision shakes out.
Your Thrift Savings Plan doesn't move or optimize itself when you leave the military — and whether you separated last month or five years ago, there's usually money on the table. Two veteran-specific facts drive the decision. First, the TSP is one of the cheapest retirement accounts in existence (about $0.35 per $1,000 a year), so if you left it alone, you accidentally did the right thing — "where should it live?" is usually answered by "keep it in the TSP, or roll to a low-cost IRA; never an advisor-managed product charging 1%." Second, and far more valuable: any low-income year is a chance to convert Traditional TSP/IRA dollars to Roth and pay 10–12% tax now instead of 22%+ in retirement. Your separation year is the classic one (partial-year W-2), but so is a year in school on the GI Bill, a gap year, or — especially — living mostly on tax-free VA disability, which keeps a 100% P&T veteran in a low bracket every year. This tool shows how much you can convert cheaply (this year and going forward), whether your TSP is in the right place, and the keep / roll / convert decision with the pros and cons of each.
We'll send a personalized link back to your exact plan so you can revisit or share it. You'll also get The Better Veteran newsletter — weekly insights on optimizing VA disability, military retirement, and other veteran benefits. No spam, unsubscribe anytime.
A Roth conversion sounds complicated; the mechanics are simple. Here's the exact sequence.
Not tax advice. A conversion is irreversible and interacts with your whole tax picture — confirm the amount with a CPA or fee-only advisor before you execute.
The Roth conversion math uses the 2026 federal tax brackets (IRS Rev. Proc. 2025-32, post-OBBBA). We compute your taxable income for the year (your ordinary income minus the standard deduction — deliberately excluding VA disability and combat-zone pay, which are tax-free), then measure how much room you have in your low brackets up to the target rate you choose. The "suggested conversion" fills that room (capped by your Traditional balance), and the conversion tax is the difference between your tax with and without the conversion stacked on top — a true marginal figure, not your average rate. We compare that to what the same money would likely cost if withdrawn at your expected retirement bracket.
The fee comparison grows your balance at (return − annual expense ratio) over your horizon for four tiers: the TSP (~0.035%, from tsp.gov), a low-cost self-directed IRA (~0.08%), an average mutual-fund IRA (0.40%, ICI 2024 asset-weighted), and an advisor-managed IRA (~1.0% AUM plus fund fees). The gap versus the TSP is the dollars that option would cost you. The decision guidance flags the Rule of 55 (penalty-free TSP withdrawals if you separate in/after the year you turn 55 — lost if you roll to an IRA) and the under-59½ early-withdrawal penalty. As of January 28, 2026 the TSP allows Roth in-plan conversions, so converting Traditional→Roth no longer requires rolling out to an IRA. This is an educational planning tool, not tax or investment advice — confirm with a fee-only (not commission-based) advisor or a CPA before converting.
For most veterans, keeping the money in the TSP is a strong default: its expense ratio is about $0.35 per $1,000 (0.035%), among the lowest anywhere, and it includes the G Fund, which has no civilian equivalent. Rolling to a low-cost self-directed IRA (Vanguard, Fidelity, Schwab) is roughly a wash on fees and buys more options and easier conversions. The expensive mistake is rolling into an advisor-managed IRA charging ~1%/year — on $300,000 over 30 years that can cost well over $500,000 versus the TSP. Never cash out: under 59½ you'd owe a 10% penalty plus ordinary income tax.
The year you separate is often the lowest-tax year of your life: a partial-year W-2, completely tax-free VA disability that never counts as income, and excluded combat-zone (CZTE) pay. That leaves room in your low brackets to convert Traditional TSP/IRA money to Roth at 10–12% now instead of 22%+ in retirement. The converted money then grows tax-free for life with no required minimum distributions.
Yes — as of January 28, 2026 the TSP allows Roth in-plan conversions. You can move money from your Traditional (pre-tax) TSP balance into your Roth TSP balance without rolling out to an IRA: up to 26 conversions a year, each at least $500, leaving at least $500 in each traditional source. There are no income limits, and it's open to active participants, separated participants who keep their TSP, and beneficiary participants. You pay ordinary income tax on the converted amount from outside cash, and it's irreversible. Rolling your Traditional TSP to a Traditional IRA to convert there is still an option but no longer required. (As of 2024, neither the Roth TSP nor a Roth IRA has lifetime RMDs.)
Yes — watch this. If you separate in or after the calendar year you turn 55, you can take penalty-free TSP withdrawals before 59½. IRAs don't offer this. If you separate at 55+ and might need the money before 59½, keep at least a bridge amount in the TSP and only roll or convert the rest.
Educational estimates only — not tax or investment advice. Conversion math is marginal and simplified (ignores state tax, IRMAA, ACA subsidy cliffs, and phaseouts). Confirm with a fee-only advisor or CPA before converting.