If you’re considering a Roth conversion or have already converted your Traditional TSP to a Roth IRA, there are some critical things that you don’t want to ignore. In this video, we share 4 things that are commonly overlooked, which can oftentimes have a negative impact on your taxes and retirement benefits.

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If you’re a federal employee or member of the military, you’ve likely heard of the Thrift Savings Plan (TSP). This is a retirement savings plan that works similarly to a 401(k) and allows you to save for retirement while enjoying tax benefits. However, at some point, you may want to convert your TSP to a Roth IRA, which is a good way to diversify your retirement savings and potentially save on taxes.

Before making the switch, though, there are several things you need to consider to ensure you’re making the right decision for your future. Here are four things you shouldn’t ignore when converting your TSP to a Roth IRA:

1. Taxes – When you convert a traditional TSP to a Roth IRA, you’ll have to pay taxes on the amount you’re converting. This is because TSP contributions are typically made on a pre-tax basis, meaning you’re deferring taxes until retirement. With a Roth IRA, however, your contributions are made with after-tax dollars, so you won’t have to pay taxes on the money you withdraw in retirement. Make sure you understand the tax implications of converting your TSP before making the switch.

2. Timing – When converting your TSP to a Roth IRA, the timing of the conversion can impact the taxes you’ll have to pay. If you convert during a year in which you have a higher income, you may end up paying more in taxes. Conversely, if you convert during a lower-income year, you may be able to pay less in taxes. Talk to a financial advisor to determine the best time to convert your TSP to a Roth IRA based on your current financial situation.

3. Rollover rules – When converting your TSP to a Roth IRA, you’ll need to follow certain rules to avoid penalties or taxes. For example, you can only roll over TSP funds that are eligible for withdrawal. You’ll also need to complete the conversion within 60 days of withdrawing the funds from your TSP. Make sure you understand the rules surrounding TSP-to-Roth-IRA rollovers to avoid any issues.

4. Contribution limits – Limits for Roth IRA contributions are different than those for TSP contributions. In 2021, you can contribute up to $19,500 to your TSP, while the maximum contribution for a Roth IRA is $6,000 (or $7,000 if you’re over age 50). If you’re looking to diversify your retirement savings, you’ll need to make sure you’re not exceeding the contribution limits for both plans.

Converting your TSP to a Roth IRA can be a smart move for your retirement savings, but it’s important to consider all the factors first. By understanding the tax implications, timing your conversion appropriately, following the rollover rules, and ensuring you’re not exceeding contribution limits, you can make the switch with confidence and set yourself up for a comfortable retirement.