The TSP Tax Tsunami That Could Flip Your Retirement Strategy

Most federal employees are contributing to their TSP like it’s business as usual.

But in 18 months, the tax environment we’ve come to rely on could vanish—leaving you with a retirement plan that’s suddenly out of sync with reality.

And here’s the part few are talking about:

Let’s break it down.

What’s Changing in 2026

At the end of 2025, the Trump-era tax cuts are set to expire—which means:

• Today’s 12% bracket becomes 15%

• 22% jumps to 25%

• 24% climbs to 28%, and so on...

Unless Congress extends the cuts, your future retirement withdrawals (especially from Traditional TSP) could be taxed at a higher rate than your contributions ever were.

Now add in Secure Act 2.0, which:

• Delays RMDs but doesn’t reduce them

• Eliminates Roth catch-up contributions (for high earners)

• And makes Roth vs. Traditional timing more important than ever

The New Roth vs. Traditional Equation

Before:

After 2026:

Here’s why that matters:

✅ Traditional TSP

• Defer taxes today, but risk higher tax bills tomorrow

• RMDs can push you into a higher bracket just as healthcare and long-term care costs spike

✅ Roth TSP

• Pay taxes now at known rates

• Withdraw tax-free in retirement—even if brackets go up

This isn’t about which is better. It’s about which is better for the future tax code—not today’s.

Let’s say you retire in 2027 with $850K in your Traditional TSP.

Under today’s rates, you expect to withdraw at 12–22%.

But if the brackets revert? You could be looking at 15–25%, for life—just as RMDs begin.

That could cost you $3,000–$8,000 more per year, every year of retirement.

Bottom Line

With big shifts coming, now’s the time to optimize for the future, not the past.

—FWR

P.S. If you need a hand with building a more self-directed, abundant retirement 👇