When it comes to building long-term, tax-efficient wealth, few tools are as powerful as Roth accounts. But what if most of your retirement savings are sitting in pre-tax accounts like a Traditional TSP, IRA or 401(k)? That’s where Roth conversions come in—a strategy that allows you to shift your savings into a Roth account and lock in tax-free growth for the future.
For military members, veterans, and their families, Roth conversions can be especially strategic when used at the right time. This article will break down the different types of Roth conversions and highlight key opportunities that are unique to the military community.
What Is a Roth Conversion?
A Roth conversion involves moving money from a tax-deferred retirement account (like a Traditional TSP, IRA or 401(k)) into a Roth account. You’ll pay income taxes on the converted amount for the tax year in which you make the conversion, but the funds will grow tax-free and can be withdrawn tax-free in retirement—so long as you meet the rules.
The key difference between traditional and Roth accounts is when you are taxed. Traditional retirement accounts defer taxes until you pull money out during retirement. Roth retirement accounts let you pay taxes during the year of contribution but allow for tax-free withdrawals during retirement. Both types of accounts allow growth and income in the accounts to accumulate without paying taxes. In practical terms that means which type of account gives the greatest tax advantage in any given year is determined by the difference in the marginal tax rate for the current tax year and your marginal tax rate during the year in retirement for which you pull out those funds.
3 Common Types of Roth Conversions
1. IRA to Roth IRA Conversion
This is the most basic form of Roth conversion. You move money from a Traditional IRA to a Roth IRA. The amount converted is treated as taxable income in the year of the conversion.
A slightly more complicated but no less important version of this is contributing to a traditional IRA even after you exceed the income limitations for qualifying for the tax deductibility on a traditional IRA, and then converting those non-deductible funds from the traditional IRA to the Roth IRA. This is sometimes referred to as a "Backdoor Roth" conversion. This is allowed without further tax implications because you would have already paid the taxes on the contributions to the traditional IRA. For some high income earners they are not allowed to contribute funds directly into a Roth IRA and this strategy allows them to have access to the tax benefits of a Roth IRA account.
Example Use Case: A service member deployed to a combat zone might pay little or no federal income tax for the year. That low tax rate makes it an advantageous time to convert funds from a traditional IRA to a Roth IRA.
2. After-Tax TSP or 401(k) to Roth TSP or 401(k) Conversion (In-Plan Roth Conversion)
Some employer-sponsored retirement plans, including the TSP (Thrift Savings Plan) and civilian 401(k)s, allow after-tax contributions in addition to the regular pre-tax or Roth contributions. If your plan allows it, you can convert those after-tax contributions to a Roth TSP or 401(k) within the same plan. This is sometimes called a “Mega Backdoor Roth” conversion.
In the TSP it is important to note that currently the only way to fund your account with after-tax dollars is with excess contributions from tax-exempt pay earned while in a combat zone. Also, the first year the TSP will allow in-plan conversions from traditional or after-tax funds into the Roth portion of your TSP is calendar year 2026.
Note: Not all civilian plans allow in-plan Roth conversions, so check with your benefits administrator.
Example Use Case: A military spouse contributing to a civilian 401(k) who has maxed out their Roth IRA can use this strategy to get even more money into Roth accounts each year. This is especially advantageous during those tax years in which you anticipate a lower taxable income.
3. Traditional TSP or 401(k) to Roth IRA Conversion
If you've separated from military or civilian service or just left your most recent civilian job, you can then convert Traditional TSP or 401(k) funds in to a Roth IRA.
Example Use Case: A recently transitioned veteran using the GI Bill to attend college may have little to no taxable income during those years—making it a prime window to convert funds at a lower tax cost.
When Do Roth Conversions Make Sense?
Not every year is a good year for a Roth conversion. Since the converted amount is taxed as ordinary income, it pays to be strategic. Here are some military and veteran life moments when Roth conversions could be particularly beneficial:
✅ Deployment to a Combat Zone
Income earned in a combat zone is federal tax-exempt, which may drop you into a very low tax bracket.
Great time to convert a Traditional IRA to a Roth IRA while incurring little to no tax.
- Read more about super charging savings during a deployment here.
✅ PCS with Spouse Unemployment
After a Permanent Change of Station (PCS), military spouses often experience job disruptions.
Family income may temporarily dip, creating a lower-tax opportunity for Roth conversions.
✅ Transition Out of the Military
Many service members use the GI Bill or are underemployed for a time after leaving active duty.
Lower income during this phase could make Roth conversions more tax-efficient.
✅ Years with Higher Deductions
Adding children to the family, starting a business, or having large medical expenses may all reduce taxable income.
These deductions can offset some of the taxes triggered by a Roth conversion.
Things to Keep in Mind
Tax Impact: Conversions are added to your taxable income for the year. Make sure you know how much tax you’ll owe—or work with a tax professional.
- Cash Flow: Just because you can lower your tax rate in a current year doesn't mean you should if it will jeopardize your cash flow and require you to take on debt or forgo other necessary purchases. Be mindful that you must have enough cash to cover the tax liability created by any Roth conversion strategy.
Timing: Roth conversions must be completed by December 31 of the calendar year.
Five-Year Rule: Converted funds must remain in the Roth for five years before they can be withdrawn penalty-free, even if you’re over 59½.
State Taxes: If you live in a state that taxes income, don’t forget to factor that in.
Should You Convert?
Roth conversions are a powerful tool—but only when used at the right time. For many military and veteran families, those ideal moments come during transitions, low-income years, or periods of tax-exempt income. The earlier you identify those windows, the more you can be prepared to take advantage of tax-free growth for life.
Final Thoughts
If you’re unsure whether a Roth conversion is right for you, speak with a fee-only financial advisor who is a fiduciary and understands the unique tax situations facing military and veteran families. Whether you’re in uniform, transitioning, or fully retired, the right tax strategies today can mean more flexibility and freedom tomorrow.
Want to explore if a Roth conversion is right for your family?
Schedule a complimentary consultation or contact us to speak with a financial advisor who understands the military and veteran lifestyle.
Disclaimer:This blog post is intended for educational purposes only; it should not be construed as tax advice or financial planning advice. Consult a professional for tax and financial planning advice before making any changes. All photos are from open-source domains, generated by artificial intelligence or are the property of Stars & Stripes Financial Advisors.