A written estimate of the tax each TSP rollover choice triggers is what Edgepoint Wealth Management delivers to separated service members holding mostly traditional TSP money. The work fits inside one tax year. A direct rollover isn't taxed, but Form 8606 counts every traditional IRA balance on December 31, so the amount and the year of the move set the tax.
Maybe you just spotted it. You rolled the Thrift Savings Plan into an IRA last spring, then your CPA mentioned that your backdoor Roth contribution is now mostly taxable. Or you're about to roll and a friend says it's free. It is free on the day. The cost arrives at tax time, and it can repeat every year.
This page isn't for you if your TSP is small, your income sits below the Roth phase-out, or you haven't separated yet. Before you read on, find your latest TSP statement (the traditional and Roth split matters) and know roughly what your pension and salary add up to.
How much tax can a TSP rollover move at age 57 with $900,000?
A direct trustee-to-trustee TSP rollover of traditional money owes $0 in tax on the day it happens. The tax shows up later, in what the move does to Roth conversions and income draws. At age 57 with $900,000 in the TSP, the wrong year can add about $2,000 of federal tax to one backdoor Roth.
The household that hits this has left service, earns a second-career salary and holds a TSP that is mostly traditional (pre-tax) money. Omar, a hypothetical retired Army colonel with 28 years of service, is 57 and divorced. He earns $180,000 as a consulting director and draws a pension of about $8,000 a month, or $96,000 a year. That puts him near $276,000, well past the IRS Roth IRA phase-out of $153,000 to $168,000 for single filers in 2026.
So Omar uses the backdoor. He puts $8,600 into a nondeductible IRA (the 2026 IRS limit of $7,500 plus the $1,100 catch-up) and converts it to Roth the same month. Omar A leaves his $900,000 in the TSP, so his traditional IRA is $0 on December 31 and the conversion is tax-free. Omar B rolled the TSP into an IRA in March. Form 8606, the IRS form that tracks after-tax IRA money, divides his $8,600 of basis by $908,600 of total IRA money. Only about $80 comes out tax-free. About $8,500 is taxable, roughly $2,000 at an assumed 24 percent rate, earnings ignored.
The row to watch is the taxable part of the conversion, where the answer flips from $0 to about $8,500.
Omar B's roughly $8,500 of basis isn't lost. Form 8606 carries it forward and it comes back a little at a time. But the backdoor year is taxed now, and Edgepoint Wealth Management treats that as the real cost. Income-first shows up as one habit: the firm sets which year the income draws and conversions happen before it picks any IRA fund. No investment is guaranteed, and IRA holdings can lose value, sometimes for several years running.
Who has this problem
Two Omars, one March rollover
If your income is above the 2026 Roth IRA phase-out ($168,000 single, $252,000 joint) and you make backdoor Roth contributions, keep pre-tax TSP money out of traditional IRAs on December 31 of that year. If you need an IRA to convert, roll over only the amount you will convert before December 31.
| Item | Before: TSP stays | After: rolled to IRA |
|---|---|---|
| Traditional IRA balance, Dec 31 | $0 | $900,000 |
| Backdoor Roth conversion | $8,600 | $8,600 |
| Tax-free part of conversion | $8,600 | about $80 |
| Taxable part of conversion | $0 | about $8,500 |
| Federal tax at 24% | $0 | about $2,000 |
| Basis carried on Form 8606 | $0 | about $8,500 |
What age forces money out of a TSP you never roll?
Age 75 forces money out of a TSP you never roll, if you were born in 1960 or later. That's when required minimum distributions, the IRS rule for forced yearly draws, begin, so the TSP can sit untouched for many years after separation.
If you have no backdoor Roth, no planned conversions and no need to consolidate, keep the TSP, review your beneficiary form, and look again when your income or Roth plans change. This service also doesn't settle whether the TSP itself offers in-plan Roth conversions, so check the current TSP rules.
Five parties handle one TSP rollover
You sign the TSP request and choose a direct rollover, not a check made out to you. Edgepoint Wealth Management runs the pro-rata and tax-bracket numbers and writes the chosen amount and year into your playbook. The receiving custodian opens the IRA and confirms the deposit. Your CPA reports the January 1099-R (direct rollovers carry code G) and files Form 8606. An attorney checks that your estate documents and the new IRA beneficiary form point the same way. Nobody on that list moves money without your signature.
How much of the advice depends on where your money ends up?
Some of it depends heavily. An advisor who bills on the size of the account gets paid more once TSP dollars land in an IRA the advisor manages. That doesn't make the advice wrong, but it's the first thing to ask about. Ask for written answers to these before you sign the TSP request:
- Will you run my Form 8606 pro-rata math before any money moves?
- What would my yearly fund costs be after the move, compared with the TSP?
- How does your pay change if I leave everything in the TSP? (At Edgepoint Wealth Management, every fee is listed in the client agreement, and nothing outside that list is charged.)
- Who checks that the request is a direct rollover and that the 1099-R is coded correctly?
3 calendars meet in a rollover year: tax, Roth and IRMAA
The rollover year sets the Form 8606 count. The conversion year sets your tax bracket. Your income at age 63 sets the Medicare Part B premium at age 65, because Medicare uses a two-year lookback (the surcharge is called IRMAA). One large conversion in a badly chosen year can hit all three. Military retirement planning puts your pension, TSP and salary in order, and tax planning for veterans covers brackets and the state and federal rules beyond the rollover.
Can a TSP rollover be undone by December 31?
Often yes. Moving pre-tax IRA money back into the TSP, or into a new employer's 401(k) that accepts it, before December 31 takes it out of that year's Form 8606 count. The TSP doesn't accept Roth IRA money or after-tax basis, which works here, because the basis should stay behind in the IRA.
We'd rather start the reverse transfer by September. Paperwork between 2 custodians can take weeks, and the December 31 deadline doesn't move.
Compare that with a timing mistake. Say you take a $100,000 TSP check at age 57 and redeposit it on day 65 instead of within 60 days. The full $100,000 becomes ordinary income, because the $20,000 withheld counts as received. If you left service before the year you turned 55, a $10,000 early-distribution penalty is added as well; separating at 55 or later generally removes that penalty for TSP money. With the penalty, that's about $34,000 at an assumed 24 percent rate, where a direct rollover would have cost $0.
Edgepoint Wealth Management's sequence, from first conversation to the January 1099-R
The first conversation comes first. Bring your TSP statement showing the traditional and Roth split, any existing IRA statements, your pension statement and your latest tax return. You decide whether a rollover is on the table at all.
Next, Edgepoint Wealth Management runs both cases, stay or move, including the pro-rata count and your bracket room. You choose the amount and the year, or you decide to keep everything in the TSP.
Last, you sign a direct rollover request and confirm the deposit with the custodian. In January you check that the 1099-R shows code G and hand it, with Form 8606, to your CPA.
The client minimum is $500K in investable assets. No phone number is published, so use the request form. Edgepoint Wealth Management serves 372,000 clients and $8.3 billion in client assets as of 10/12/2026.
A direct rollover costs $0 on the day it happens. The bill comes from the December 31 count.
Common questions on a TSP rollover
If I already rolled my TSP and now want backdoor Roth contributions, is it too late to fix?
Often not. If the IRA holds only pre-tax money, you can usually move it back into the TSP or a new employer's 401(k) that accepts it before December 31. That removes it from that year's Form 8606 count. Start early, since 2 custodians must finish the paperwork.
What happens if the TSP withholds 20 percent and I only deposit what I actually received?
The withheld 20 percent counts as money you received, so it's taxable unless you replace it from other savings within 60 days. At age 57 a $100,000 check could also add a $10,000 penalty if you separated before the year you turned 55. A direct rollover avoids all of this.
How much of a backdoor Roth becomes taxable if my IRA holds $900,000 of rolled TSP money?
About 99 percent. With $8,600 of basis and $908,600 in total IRA money, only about $80 converts tax-free and about $8,500 is taxable. At an assumed 24 percent rate that's roughly $2,000 of federal tax. This is a hypothetical example, with earnings ignored.
If I move my Roth TSP into a brand-new Roth IRA, does the 5-year clock start over?
It can. The 5-year rule for Roth IRAs counts from your first Roth IRA contribution, so a brand-new Roth IRA may start a fresh clock for the rolled amount. If you already have an older Roth IRA, its start date may apply instead. Confirm the dates with your CPA before moving.
Will rolling my TSP to an IRA change my military pension or my SBP coverage?
No. Your military pension and Survivor Benefit Plan coverage are separate from the TSP, so a rollover doesn't change either one. What changes is your taxable income picture and your IRA beneficiary form, which is why the playbook looks at the pension and the rollover together.
Primary sources
This material is general information only and does not constitute individual investment, tax, or legal advice. Investing involves risk, including the possible loss of principal. Before making any decision, talk to a financial professional, tax advisor, or attorney about your specific situation.