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Military retirees with a TSP and a second-career salary get a Roth conversion strategy from First Command Financial Services that sets each year's conversion amount and writes down what happens if stocks fall.
The written plan holds a year-by-year conversion table running to the first RMD at age 73 or 75, and it is reviewed in 1 video conversation each fall, before the December 31 conversion deadline.
You've probably meant to look at this for years. The TSP kept growing, the contractor paychecks kept coming, and the question sat in a drawer. Then a crash made you sell some stock, or a Medicare letter showed up, and a real date came into view.
One assumption sits behind the timeline: Hiroshi (hypothetical), single and born after 1960, stops his contractor job at age 62. Everything else follows from that date.
A conversion moves money from a traditional account, like the TSP or an IRA, into a Roth. The IRS taxes it as ordinary income in the year you convert, and you can't recharacterize it (undo it) later. At 54, every converted dollar for Hiroshi sits on top of a $160,000 salary and his Navy retired pay.
The window that usually matters opens when the second paycheck stops and closes at the first required minimum distribution (RMD), age 75 for people born in 1960 or later. From age 63, each year's income also sets the Medicare premium 2 years later.
The converted money stays invested, and it can fall in value. A conversion made in March can't be undone if stocks drop 20% by June, so First Command Financial Services builds the plan on the assumption that a drop will land in some conversion year.
| Age | What happens | What to do |
|---|---|---|
| Age 54 | Salary near $160,000, plus retired pay | Convert little; name Roth beneficiary |
| Age 59½ | 10% early-withdrawal tax ends | Later conversions skip that penalty |
| Age 62 | Contractor salary stops | Main conversion window opens |
| Age 63 | Income sets Medicare premium at 65 | Size conversions to IRMAA line |
| Age 67 | Full Social Security retirement age | Benefits add to taxable income |
| Age 75 | RMDs begin | Remaining traditional balance forced out |
Age changes two things: the tax rate a conversion lands on and the Medicare income line it can cross. At 54 with a full salary, convert little. At 67 on Medicare, convert in small amounts sized under the income line where the Part B premium jumps. Both answers come from the same 2 questions.
Hiroshi (hypothetical) asks whether he should convert now. At peak earnings, assume a 24% marginal rate for illustration, so a big conversion mostly prepays tax at a high rate. His answer is little or nothing now, a named Roth beneficiary today, and the main conversions after his contractor job ends.
Ruth (hypothetical), 67, files single. Her Survivor Benefit Plan annuity already counts as income, and she is on Medicare. For 2026, single filers with modified adjusted gross income (MAGI) up to $109,000 pay the standard Part B premium of $202.90 a month, according to CMS. The next tier is $284.10, which is $81.20 more each month, or $974.40 each year.
Her answer is small conversions sized under that line. She takes RMDs at age 73 since she was born before 1960, and she can use qualified charitable distributions from age 70½.
One checked box can cost $1,000 on a $40,000 conversion, and a badly timed move can erase a year of tax payments. The form looks routine, but each choice on it, from withholding to where the tax cash comes from, has a dollar price you can estimate in advance.
Hiroshi is a hypothetical person, age 54, who converts $40,000 of traditional IRA money to a Roth IRA and checks the box to withhold 25%. The custodian sends $10,000 to the IRS and $30,000 to the Roth. He is under age 59½, so the IRS treats that withheld $10,000 as a distribution and adds a 10% additional tax of $1,000. Income tax is still due on the full $40,000. At an assumed 24% rate, that's $9,600.
The fix: convert all $40,000 and cover the $9,600 by raising W-4 withholding on his contractor paycheck, never by selling C Fund shares. He avoids the $1,000 penalty and keeps $10,000 more growing tax-free in the Roth.
His other move looked smart too. After the last crash he sold half his C Fund. Say he later converts $100,000 in January and pays $24,000 of tax at an assumed 24% rate, for illustration. A 20% drop leaves the Roth at $80,000. Moving it to the G Fund then locks in the loss after the tax is already gone. Left invested, any recovery happens tax-free inside the Roth, though nothing guarantees one.
An IRS underpayment penalty can follow a conversion when no tax was paid during the year. Raising W-4 withholding on the contractor paycheck fixes it, because the IRS treats paycheck withholding as paid evenly through the year, even if you raise it in October.
The cash for the tax should never come from selling C Fund shares after a drop. The written plan names the cash account before the conversion happens. Quick test: if this year's conversion tax can't be paid from cash or paycheck withholding without selling stocks, convert less. Before age 59½, never have the tax withheld from the conversion itself.
Paperwork can cost more than tax. A $300,000 Roth IRA opened online with the beneficiary page skipped falls to the custodian's default, often the estate. A non-designated beneficiary must empty it within 5 years instead of the 10 years a named nephew would get. The fix is 1 beneficiary form, and it's only possible while the owner is alive.
First, we collect the last Form 1040, the DFAS retiree account statement, a recent contractor pay stub and the TSP and 401(k) statements. Second, we build the age timeline to age 75, marking age 59½, 63 and 67. Third, we set each year's ceiling from the room left under the bracket the household chooses and, from age 63, the IRMAA line (the income level where Medicare premiums rise), checked against current IRS and CMS figures each fall.
Fourth, before anything converts, we write down which account or paycheck will pay the tax. Fifth, we write the crash rule into the written plan: if stocks fall 20%, the planned conversion still goes ahead, the Roth stays in its stock fund and nothing moves to the G Fund. Sixth, we review each fall with year-to-date income, before December 31.
We hold to that crash rule because we think a client who sells in a slump does more damage than any bad forecast. Hiroshi's sale of half his C Fund after the last crash is the kind of move it is written to stop. The household sees the exact cost in a signed agreement before step 1.
No one knows future tax rates, and this service can't predict tax law. A Roth conversion strategy is a poor fit if most of the traditional balance will go to charity, because the conversion spends tax dollars a charity would never owe. It is also a poor fit when you'll have to spend the converted dollars within 5 years and before age 59½. Your tax preparer reports the conversion on Form 8606 and handles estimated payments. An estate attorney should draft any trust named as a Roth beneficiary.
Not always. Each conversion has its own 5-year clock, and taking converted money out within 5 years while under age 59½ can trigger the 10% additional tax even though you already paid income tax on it. Ask your CPA to track every conversion year, and check the current IRS rules.
No. The IRS no longer allows a conversion to be recharacterized, so a March conversion stays converted and the tax is owed on the amount moved that day. That's why the written plan assumes a drop will land in some conversion year and sizes each conversion to a tax bill you can pay from cash.
He inherits both, but they're taxed differently. A named nephew generally must empty each account within 10 years. Roth withdrawals are usually tax-free, while traditional TSP withdrawals count as his ordinary income. If the Roth IRA has no named beneficiary, the estate may inherit and a 5-year payout applies, so check every beneficiary form.
Test the numbers alone until 1 of 3 triggers appears. Find taxable income on last year's Form 1040, open every Roth beneficiary page, and write down what you did in the last crash. Call First Command Financial Services when 1 conversion tops about $25,000, you're within 2 years of age 63, or you've sold in a slump. The firm's minimum is $500,000 in investable assets.
This article is general financial information only, not investment advice tailored to your circumstances. Investing involves risk, including loss of principal. Before making any financial decision, consult a qualified professional about your specific situation.