Intro
The years between federal retirement and starting Social Security are the most valuable tax-planning years most federal retirees will ever see. And most retirees don’t use them.
For a FERS employee who retires at 57 or 58 and delays Social Security to 67 or 70, that’s a decade-long window where your taxable income drops dramatically. Your federal salary is gone. Social Security hasn’t started. If you’re not tapping large TSP or IRA withdrawals yet, your total taxable income might be just the FERS pension plus the FERS Supplement — often putting you in the 12% or 22% federal tax bracket, well below the 24% or 32% brackets you were in while working.
This is the window for Roth conversions. Every dollar you convert from traditional retirement accounts to Roth during these gap years is taxed at your current low rate — instead of the higher rate you’ll pay once Required Minimum Distributions (RMDs) kick in at 73 and Social Security is fully in play.
Done right, Roth conversions in the FERS gap years can save $50,000 to $200,000 across a 30-year retirement. Done wrong, they can trigger IRMAA Medicare premium surcharges and Social Security tax cliffs that eat most of the benefit.
Here’s how the math actually works.
What a Roth conversion is
A Roth conversion moves money from a traditional (pre-tax) retirement account — like a traditional TSP, traditional IRA, or 401(k) — into a Roth account. The amount converted is treated as ordinary income in the year you convert it, and you pay tax on the entire converted amount at your marginal rate that year.
After the conversion:
- The money grows tax-free in the Roth
- Qualified withdrawals in retirement are tax-free
- Roth IRAs have no Required Minimum Distributions during your lifetime (Roth 401(k)s and Roth TSP do — but you can roll them to a Roth IRA to eliminate the RMD)
- Your beneficiaries inherit the Roth balance and can generally take tax-free distributions
The strategic question: does it make sense to accelerate the tax bill on this money now so that everything after is tax-free?
Why the gap years are special
Two things are true simultaneously in the FERS gap years that aren’t true in any other phase of retirement:
Your marginal tax rate is at its lifetime low point. Your federal salary has ended. Social Security hasn’t started. Any TSP or IRA withdrawals are usually small (many retirees live on the annuity + Supplement alone during this period). This puts you in the lowest tax brackets you’ve been in since your 20s.
The tax code hasn’t started forcing income back on you. RMDs from traditional retirement accounts start at 73. Social Security taxation ramps up once you file. Medicare IRMAA premium surcharges kick in for high-income retirees. In the gap years, none of these forces are pushing your taxable income up — so you have room to intentionally add income (via Roth conversions) without hitting a higher bracket.
Example: Bob retires from federal service at 58. His FERS pension is $50,000/year and his FERS Supplement is $18,000/year. His total taxable income is $68,000 minus standard deduction and other adjustments — putting him in the 12% federal bracket, with maybe $30,000 of room before hitting the 22% bracket.
Bob converts $30,000/year from traditional IRA to Roth IRA every year from age 58 until Social Security starts at 67. Nine years of conversions moves $270,000 into the Roth, all taxed at 12% federal ($32,400 total tax). Compare to leaving that $270,000 in the traditional IRA, letting it grow, and being forced to withdraw it during years when he’ll likely be in the 22% or 24% bracket — potentially $60,000-$70,000 in future tax. Net savings: $30,000-$40,000, and the Roth grows tax-free forever afterward.
What sabotages the strategy
Filing for Social Security early. Once Social Security starts, up to 85% of it becomes taxable depending on your total income. This raises your total taxable income and shrinks the room you have for Roth conversions at low rates. Retirees who file for Social Security at 62 lose most of the Roth-conversion advantage they could have captured by delaying to 67 or 70.
Large TSP or IRA withdrawals. If you need to withdraw $80,000/year from your TSP just to cover living expenses, you’re already using up your low-bracket room. There’s no space left for Roth conversions.
IRMAA thresholds. Above $103,000 of AGI (2026 single) or $206,000 (married filing jointly), Medicare Part B premiums rise sharply. IRMAA is a two-year look-back — meaning your 2026 AGI determines your 2028 Medicare premiums. Retirees over 65 need to model conversion impact on IRMAA before executing. A conversion that pushes you over the threshold can cost thousands in higher Medicare premiums.
Health insurance subsidies. If you’re on ACA marketplace coverage (rare for federal retirees, since FEHB is available) instead of FEHB, Roth conversions can push you above subsidy income limits and cost you thousands in lost premium tax credits.
The right conversion size each year
The formula most federal retirees use looks like this:
1. Determine your projected taxable income for the year (pension + Supplement + any interest/dividend income + small TSP withdrawals). 2. Determine where the top of your target bracket is. For most gap-year retirees, that’s the top of the 12% bracket (~$96,950 taxable income for MFJ in 2026) or the top of the 22% bracket (~$206,700 for MFJ in 2026). 3. Convert the difference to Roth. If projected income is $70,000 and target is $96,950, convert about $27,000. 4. Verify the conversion doesn’t push you across an IRMAA threshold if you’re over 63 (the two-year IRMAA lookback means age 63 conversions affect 65+ Medicare premiums).
You do this year by year, adjusting for changes in income, tax law, and account balances. Some years you convert nothing (like the year you take a large TSP distribution for a home purchase). Some years you convert aggressively.
How to actually execute a conversion
For a TSP-held traditional balance, you’ll typically:
1. Roll a portion of your traditional TSP to a traditional IRA. (You can’t do Roth conversions directly from TSP.) 2. Convert from the traditional IRA to a Roth IRA. Both custodians handle this via standard paperwork. 3. Pay the resulting tax bill from taxable-account cash — not from the converted amount. Converting $30,000 and using $6,600 of the converted amount to pay federal taxes means you only moved $23,400 to Roth. Paying the tax from taxable savings preserves the full conversion. 4. Verify the conversion appears on your 1099-R at year-end and matches your records.
You can convert as many times per year as you want, though most retirees do one large annual conversion in December once their year’s total income is knowable.
The 5-year rule and other traps
Roth conversions have a 5-year clock. Any earnings on the converted amount must age at least 5 years in the Roth before they can be withdrawn tax-free — even if you’re over 59½. The clock runs separately for each conversion. This mostly matters for retirees who might need to tap the Roth in the short term. If you’re converting money you don’t plan to touch for a decade, it’s rarely an issue.
Also: converted amounts are NOT subject to the 5-year rule for withdrawals of the principal after 59½, but the earnings are.
Most retirees who do Roth conversions during the gap years never touch that Roth money for decades. It grows tax-free, passes to heirs tax-free, and serves as long-term legacy money. The 5-year rule is more of a technical detail than a practical constraint.
What we tell federal retirees at Stonebridge
The Roth conversion strategy is one of the most impactful pieces of retirement planning — often the difference between $50,000 and $200,000 in lifetime tax savings — and it’s very much a “years-long execution” plan rather than a “one-time decision.” That’s why we include a Roth conversion schedule in every Federal Retirement Report we produce. Not “you should convert” or “you shouldn’t,” but “based on your specific pension, Supplement, TSP balance, Social Security timing, and IRMAA thresholds, here’s how much to convert each year for the next decade.”
If you’d like a personalized Roth conversion plan built for your situation, you can request a free Federal Retirement Report. There’s no charge and no obligation.
The FERS gap years are a gift the tax code hands federal retirees. Most retirees leave the gift unopened. The ones who use it well are dramatically better off two decades later.