Is the Roth TSP Actually a Tax Trap in Disguise?

Most federal employees are told the Roth TSP is the smarter move:

But that advice — repeated in seminars, HR briefings, and online forums — often misses the bigger picture…

That the Roth TSP can quietly cost more over time than the Traditional option.

Here’s why.

Mistake #1: Confusing Marginal Tax Rate with Effective Tax Rate

Let’s say you’re in the 22% tax bracket today. You might assume that paying taxes now (Roth) is a safer bet — especially if tax rates rise later.

But…

In retirement, most federal retirees aren’t in the same tax bracket. Their effective tax rate — the actual percentage of income paid in taxes — is often much lower, thanks to:

• Standard deductions

• Partial taxation of Social Security

• Tax-efficient withdrawals and timing

So if you’re paying 22% now on Roth contributions but will only owe 12–15% in effective taxes later… you just overpaid Uncle Sam.

Mistake #2: Overlooking the IRMAA Squeeze

IRMAA (Income-Related Monthly Adjustment Amount) is a stealth tax hike on high-income retirees.

When your income crosses certain thresholds, your Medicare Part B and D premiums increase, sometimes by thousands per year.

Now, Roth TSP withdrawals are tax-free, so they don’t count toward IRMAA — but here's the catch:

If you go heavy on Roth during your working years, you might end up withdrawing less taxable income in retirement…

Which seems good — until you’re forced to take larger Required Minimum Distributions (RMDs) from your Traditional TSP or other accounts, pushing you into IRMAA territory anyway.

👉 Sometimes keeping more in Traditional and managing withdrawals strategically keeps your IRMAA exposure lower over the long haul.

Mistake #3: Ignoring Future Flexibility

Roth is often praised for its tax-free growth — but it also locks in today's tax rates, regardless of what your retirement situation looks like.

With Traditional, you can:

• Delay withdrawals (until age 73+)

• Convert to Roth gradually during low-income years

• Manage taxable income in retirement with more control

Many retirees do partial Roth conversions after retirement, during the “tax valley” between their last paycheck and their first Social Security or pension withdrawal — a move that can save thousands when done right.

Mistake #4: Overestimating the Benefit to Heirs

You might assume Roth TSPs are a great gift to your children or spouse.

But the SECURE Act changed the game.

Now most non-spouse beneficiaries must withdraw the entire Roth TSP within 10 years of your death.

That limits the long-term, tax-free compounding benefit.

And for some heirs — especially those in high-earning years — it can be a burden, not a blessing.

So… Is the Roth TSP Bad?

Not at all. But like most financial tools, context matters.

The Roth TSP can be a great fit if:

• You’re early in your career and in a very low tax bracket

• You expect much higher income later

• You want to hedge against future tax hikes and don’t mind giving up flexibility

But if you’re a mid-to-late career federal employee or retiree?

You might want to run the numbers first — not just follow the Roth crowd.

The Bottom Line

Choosing between Roth and Traditional isn’t about which one is “better” — it’s about which one is better for you, right now, and in the future.

If you’ve never projected your expected retirement income or reviewed your tax strategy in detail, this might be the time to do it.

Your TSP should work with your retirement — not against it.

Best,
Federal Wealth Retirement