Since 2012, federal employees have had the option to contribute after-tax dollars to the Roth Thrift Savings Plan (TSP). While agency matching contributions still go into the traditional TSP, the Roth TSP gives participants the ability to make tax-free withdrawals in retirement. For many, that’s a valuable benefit, but it’s not the right move for everyone. Before adding the Roth TSP to your retirement strategy, it’s worth weighing both the pros and the cons.
Contributions Are Made With After-Tax Dollars
When you contribute to a Roth TSP, you pay taxes on that money up front at your current tax rate. The upside: qualified withdrawals in retirement are tax-free. But if you’re still raising kids or juggling big expenses, paying taxes now may not be the most practical choice. In that case, contributing to the traditional TSP could be smarter. It lowers today’s taxable income, and if you retire in a lower tax bracket, you’ll pay less on withdrawals than you would now.
High Earners Often Favor the Traditional TSP
Households with strong incomes, especially dual-income families in higher tax brackets, may find more benefit in the traditional TSP. Deferring taxes on contributions reduces their current taxable income, which can be significant.
Less Useful for Those Near Retirement
Data shows that roughly 36% of TSP participants contribute to the Roth option, and balances in Roth TSP accounts are generally much smaller than traditional TSP balances. If you’re within just a few years of retiring, Roth contributions may not be worthwhile. At that point, you’re likely earning the most you ever have, meaning you’d be paying higher taxes now for only a short time horizon to let Roth benefits accumulate. In these cases, traditional pre-tax and catch-up contributions usually provide more immediate tax relief.
If you’re interested in transitioning some of your TSP traditional balance to a Roth TSP, beginning January 1, 2026, you will have the ability to make in-plan TSP Roth conversions. Keep in mind that since your traditional TSP contributions were pre-tax, this will incur a tax bill. Speak with a Federal Retirement Consultant (FRC®) who can review your retirement strategy, crunch the numbers, and determine if a Roth TSP makes sense for you.
