TSP Update: The New In-Plan Roth Conversion & The "Tax Valley" Strategy

On January 28, 2026, the TSP is introducing a major new feature: In-Plan Roth Conversions

Historically, retirees had to roll funds out of the TSP into private IRAs to access this strategy. The TSP is now modernizing its rules to offer this flexibility within the plan, allowing you to manage your tax strategy without leaving the low-cost structure of the TSP.

The Big Question: Should you convert now?
For most investors, the answer depends on whether you are in a "Tax Valley."
What is a "Tax Valley"? It is a period of time where your taxable income is temporarily lower than usual. Generally, this happens after you retire but before you claim Social Security or hit Required Minimum Distribution (RMD) age.
However, the Foreign Service lifestyle offers unique exceptions where this "Valley" happens while you are still an active employee:
Overseas Posting with Non-Working Spouse: If your household income has dropped because an EFM is between jobs.
High Allowances / Low Taxable Income: If your lifestyle is funded significantly by non-taxable allowances (COLA, Housing), keeping your taxable gross income artificially low.

Why Consider Converting? If you are in one of these "Valleys," converting Traditional TSP balances to Roth allows you to:
Lock in Low Tax Rates: Pay taxes now while your bracket is low, rather than later when it might be higher.
Eliminate RMDs: Roth TSP balances are not subject to Required Minimum Distributions during your lifetime, giving you control over your cash flow.
Secure Your Legacy: Since your FSPS pension and Social Security often cover daily living expenses, the TSP can become a legacy asset. A Roth account passes to heirs tax-free, whereas a Traditional account passes a tax bill to them.

Note of Caution: This decision is irreversible. Tread carefully. It requires a precise comparison of your current marginal tax bracket versus your projected retirement bracket.