In-Plan Roth Conversions

Summary

Jill on Money with Jill Schlesinger

Episode: In-Plan Roth Conversions

Date: September 2, 2025
Host: Jill Schlesinger, CFP®
Producer/Co-host: Mark
Theme: Tackling financial questions with direct, jargon-free advice—focusing this week on in-plan Roth conversions, retirement strategy, decumulation concerns, insurance, and optimal ways to park cash.

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Overview

Jill kicks off the post-Labor Day show reminding listeners not to put their own financial planning last as they return to routines like work and school. The episode is a listener Q&A, with questions touching on the IRS’s new in-plan Roth conversions for federal employees’ Thrift Savings Plans, retirement readiness, optimizing investments, choosing umbrella insurance, and smart ways to maximize savings account returns in the face of falling interest rates. Jill and Mark break down the nuances of each scenario with characteristic empathy, humor, and practical advice.

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Key Discussion Points & Insights

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1. In-Plan Roth Conversions (Federal TSP)

(Listener: Mark | 00:37–02:57)

• Listener’s Situation:
  Mark, a federal employee, plans to take advantage of the new option (starting Jan 2026) to convert traditional Thrift Savings Plan (TSP) money to Roth TSP.

  • Intends to convert $10,000/yr (about the amount of employer’s match).
  • Already contributes to Roth TSP.
  • Wants advice on the easiest, most tax-efficient way to cover the conversion tax: lump sum, estimated payments, or increased payroll withholding.

• Jill’s and Mark’s Guidance:

  • Both agree that adding extra payroll withholding is the easiest and most seamless method, especially for smaller conversion amounts.
  • “That would probably be my choice. That's like the path of least resistance. If someone can do it for me, I'm going to let them do it.” – Mark (02:49)
  • Jill highlights the opportunity: Federal employees should pay attention to this new flexibility. “If you can do this...you're able to convert enough to essentially get yourself in a place where you can just start slowly but surely converting.” – Jill (02:57)
  • They encourage federal workers to take advantage and reach out for tailored advice.

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2. Retirement Readiness and Decumulation Anxiety

(Listener: Kiki | 02:57–07:28)

• Listener’s Details:
  Kiki, 45, single, federal worker, significant assets:

  • Home: $200K mortgage @ 4.375% (on a $350K home). Extra $100/mth toward principal.
  • TSP: $1.1M, split roughly half Roth/half traditional.
  • HSA: $35K (maxed out annually).
  • Brokerage: $760K, plus two accounts with $44K (bonds) and $43K (stocks).
  • Cash: $25K money market, $15K CD, monthly expenses $3,500.
  • Retirement goal: 57–59 (not counting government pension).

• Jill’s Advice:

  • On Mortgage: Stop extra principal payments—focus on investments instead.
    • “45, single, no kids. Stop putting that extra money down. Stop it.” – Jill (03:44)
  • On Retirement Readiness: Absolutely on track. Should include both pension and Social Security in plans.
    • “Why am I not including your government pension? That seems ridiculous.” – Jill (05:09)
    • “You don't have to plan on the worst possible scenario.” – Jill (07:28)
  • On Investing: Keep it simple. Use stock and bond indexes in IRAs, skip extra complexity.
  • On Decumulation Fears: “You're in great shape.” Mark and Jill reassure Kiki that with her discipline and portfolio, decumulation will be manageable.

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3. How Much Umbrella Insurance?

(Listener: Jennifer | 07:28–09:34)

• Situation: Jennifer and her brother are evaluating the right amount of umbrella insurance for their 81-year-old mom (net worth: $6M, $1M current policy, owns 4 rental properties in a sole-prop LLC, drives, faces scam risk).

• Jill & Mark’s Rule of Thumb:

  • “I usually just say I will take the largest amount they will give me. So that's what I would say.” – Jill (07:41)
  • Seek quotes for $2-5M coverage; umbrella insurance is usually inexpensive.
  • Mark: “Umbrella policy in general is pretty cheap.” (09:26)
  • They note higher coverage might support arguments around safety and the appropriateness of driving.

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4. SEP IRA Transfers and Tax Implications

(Listener: Mary | 09:34–11:08)

• Listener’s Concern: Vanguard discontinued her husband’s SEP IRA, money moved to T. Rowe Price. She’s concerned about higher fees and whether to sell, rebalance, and incur taxes.

• Jill’s Clarification:

  • In a SEP IRA, rebalancing does NOT trigger taxes.
    • “A SEP IRA? There's no tax that's due if you rebalance.” – Jill (10:34)
  • If other brokerage accounts are involved, that’s different—clarifies need for more info.
  • Mark expresses surprise at Vanguard’s move and suggests a straightforward IRA rollover might have been possible.

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5. Where to Put High-Yield Savings as Rates Fall

(Listener: Sue | 11:08–14:24)

• Situation:

  • $250K in high-yield savings (now dropped from 5% to 3.75%).
  • $2.7M in managed investment accounts, $100K in regular savings/checking.
  • 2 rental properties and a paid-off primary residence. Net rental income: $80K/yr.
  • Early 60s, husband retired, wife works part-time for health insurance.

• Jill’s Recommendations:

  • CD ladders or bond ladders are smart, offering more yield and some liquidity.
    • “It would be great to get that money working, but not at a high risk.” – Jill (13:36)
  • Stagger maturities to match possible cash needs: 6-month, 1-year, and include longer-term treasuries.
  • No need to take extra risk; current financial position is excellent.

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Notable Quotes & Memorable Moments

• On federal Roth conversions:
  “If you can do this…you're able to convert enough to essentially get yourself in a place where you can just start slowly but surely converting without going into a brand new tax bracket…This is great.” – Jill (02:57)

• On decumulation fear:
  “You don't have to plan on the worst possible scenario…Look at the most likely scenario, which is you're going to get this. Come on, you don't have to worry.” – Jill (07:28)

• On umbrella insurance:
  “I usually just say I will take the largest amount they will give me.” – Jill (07:41)
  “Umbrella policy in general is pretty cheap.” – Mark (09:26)

• On cash management:
  “It would be great to get that money working, but not at a high risk.” – Jill (13:36)

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Timestamps for Key Segments

• 00:37 – Jill’s intro and first listener question about Roth TSP in-plan conversions
• 02:49 – Mark’s input: payroll withholding is simplest for Roth conversion taxes
• 02:57 – Jill’s praise for the new conversion option, invite for more federal employee stories
• 03:44 – Kiki’s comprehensive financial situation, mortgage, and investing habits
• 05:09 – Jill’s take on including government pension/Social Security in plans
• 07:28 – Mark and Jill on Kiki’s excellent progress and decumulation
• 07:41 – Umbrella insurance: get the largest practical policy
• 09:26 – Umbrella policy pricing is generally low
• 10:34 – SEP IRA rebalancing is not taxable
• 11:08 – Clarifying SEP IRA transfer options
• 13:36 – Safe strategies for deploying large cash balances

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Conclusion

Jill and Mark field a variety of listener scenarios with straightforward, actionable advice:

• Take advantage of tax-smart Roth conversions when available.
• Keep investment strategies simple and resist overpaying your mortgage.
• Don’t underestimate your retirement readiness—plan for the likely, not the worst.
• Maximize insurance coverage for peace of mind.
• Park cash strategically in safe, higher-yield products like ladders.

Their tone is consistently supportive and empowering: “We love answering your questions. We love talking to you.” The episode is accessible, jargon-free, and focused on what really matters to listeners working to “change your work, change your wealth, change your life.”

Transcript

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[Jill]

Welcome to the Jill on Money show. It's Tuesday, September 2nd. Yep. Back to work, back to school, back into the grind. I know. Sorry gang. It's just where we are and sometimes when we get back into our routine, what happens is all the things that we thought we needed to do for ourselves, we kind of put at the bottom of the list. Maybe your kids are going back to school. Maybe you move someone into colle and you're really focused on that. Okay, I get it. Please don't put yourself last. We have to make sure that we help you build your financial foundation. And if you've got a question about anything going on in your financial life, we're here to help you out. Both Mark and I are certified financial planners. We love answering your questions. We love talking to you. So get in touch with us. Go to jillonmoney.com, click the contact Us button, write us a note. And if you'd like to join us live, just check the box. Mark will do everything else right now. Let's take an email. This is from Mark and Mark says beginning in 2026, in January of 26, my employer, that is the federal government, is planning on offering in plan Roth conversions from the traditional Thrift Savings Plan to the Roth Thrift Savings Plan. I am planning to convert about $10,000 per year, which is roughly the same as my employer's match. I've also been consistently contributing to the Roth Thrift Savings Plan. If I convert this $10,000 in January, it looks like there are three ways to pay the taxes. One, all at once by April 15th, I think, I think it would be April 15th of the next year though, right? Because if you're right, so it's, it's in January of 26. So you would pay it all at once in April of 2027. The second idea split over four quarters on April 15, June 15, September 15 and Jan 15. So when you make quarterly estimates or through extra payroll withholding, given that I'm not converting very much, I think the easiest way would be to pay the taxes through additional payroll withholding. Is there a reason not to do this? I don't think so. Do you see a reason not to do this?

[Mark]

Mark Tiller, SEO no, that would probably be my choice. That's like the path of least resistance. If someone can do it for me, I'm going to let them do it.

[Jill]

Exactly. I agree. So yeah. Mark, this is so cool. By the way, for everyone listening who are federal government employees, it can't just be this one person. Like this is a very interesting opportunity. So if you can do this, and it's a very low barrier to entry, you're able to convert enough to essentially get yourself in a place where you can just start slowly but surely converting without going into brand new tax bracket or even paying just a little. This is great. So if this is applies to you, give us a holler. We'd love to try to make sure that you're taking advantage of this. As always, this is where we thrive when we have people who are listening who can share information and we'd love to share it with you as well. Okay, this note is from Kiki who says, how am I doing? I foresee decumulation concerns. Hiya, Jill and Mark. I'm an avid listener of your show, both shows in fact, and I have been doing so for years before the pandemic. I thoroughly appreciate all of your advice. I actually try to predict what your advice will be to the people who call an email with their financial conundrums. I'm 45, single, no kids, except that four, four legged furry kind meow. And a federal employee living in the south. Hey, Mark, we've got a big federal government listenership. Go baby, let's go. I like that. Bring it on. Okay, so Kiki's house is, let's see, got has a $200,000 mortgage that remains at 4.375% for 15 years. The price of the house she purchased, it was $350,000. I also have $8,000 at a bank as a safeguard for the mortgage. And I put an additional $100 towards principal every month. 45 single, no kids. Stop putting that extra money down. Stop it. Thrift savings plan 1.1 million. And it's about. Essentially it is a mix of both Roth and traditional. Just about half and half. And I plan to max it out in 2025. Invested 80% in the C fund, 10 in the S, which is I think stock and 10 is the I in the income HSA. $35,000. Max out annually and pay most of my medical costs out of Current income brokerage $760,000. Includes $240,000 in a Roth and then a bunch of other money in Vanguard funds. Brokerage two. So she's got one for 600, 761 in 40 has $44,000 of bonds, and one has $43,000 in individual stocks. This is amazing. I just want to tell you that the third brokerage account, an assortment of individual stocks that include, when I was working in retail in high school, okay, savings money market, $25,000, earning about 3.8%, $15,000 in a CD, matures in March 4, 5.3%. Monthly expenses, $3,500. And try to add at least $500,000 a month to that big brokerage account. The $760,000 1. Questions. Am I on track to retire at 57 or 59, not including my government pension? Not planning on Social Security, but if it is solvent and available, I would take it at 70. Why am I not including your government pension? That seems ridiculous. I mean, yeah, you don't spend any money. So, number one, yes, I do, but I think that's silly. You should include your government pension and you can do that at age 57 and that would be fine. And Social Security will be fine. It'll be. You'll be. Have it available. Should I switch my brokerage account investments, perhaps changing the fund that's inside of my Roth ira, which is actually just a Vanguard balance fund. I would just use. Just use a bond index and a stock index and maybe an international index, and go to sleep at night. What else can I be doing to maximize my funds? Nothing. You're doing great. But stop putting extra money down on your mortgage. You don't need to do that. Already know that. I think that I'm going to be like recent callers who are troubling, who have trouble with the decumulation part of retirement. Thank you in advance. Taking the time to respond. Kiki, Kiki, really, you're in great shape, Mark. Do you see anything wrong with the game plan?

[Mark]

I mean, no, she's rocking it. I mean, she's what, mid-40s, couple million dollars, working for the feds. She's gonna have a pension.

[Jill]

It's incredible. I mean, 45 and single with no kids definitely helps out, just to be clear. So. But, you know, don't. Don't have to plan on everything being the worst thing in the world. You know what I mean by that? Like, in terms of, like, where you're going to, you know, put your efforts. I really want you to be clear that you don't have to plan on the worst possible scenario. You just don't. I know that. Like I'll do. I do that too. But you can also look at the most likely scenario, which is you're going to get this. Come on, you don't have to worry. All right. This is from Jennifer, who's got a question about umbrella insurance policies. How do you know the amount you should get? Okay, I just want to tell you one thing. I usually just say I will take the largest amount they will give me. So that's what I would say. That's how I have gotten. Is there a formula for how much you should get in an umbrella insurance policy? She and her brother are wondering how much their 81 year old mother should be carrying. She's got a net worth of $6 million. Much of the money was inherited seven years ago. So we're not thinking about. We're not used to thinking about this size of an estate. Her current umbrella policy is for $1 million as potential risk. Go. Mom is 81, still driving four rental homes which are in a sole proprietor LLC. So I'm not sure how much risk that is for the remainder of her money. Is her current umbrella policy enough? Maybe this is one argument we can make with her as a reason to give up the keys at some point. I realize our situation is unique. I've not heard you talk about umbrella policies and how to determine the amount that makes the most sense to protect your financial future. Mostly what we have been worrying about so far is keeping your money safe from predatory scams and that's just hard enough. Oh, brother. Mark, is there a rule of thumb about umbrella policies? I literally think you should get as much as they'll give you. And I would say to her, like, honestly, if you can get a $5 million policy, I bet that's plenty. And that would work. What do you think?

[Mark]

Yeah, I would price it. See how much it's going to cost to jump from 1 to 2 to 3 to 4. Umbrella policy in general is pretty cheap.

[Jill]

Yeah. So that's what I think. Like if it's cheap, great, use it. Let's do that. Okay, thank you. Okay, next question from Mary. I've been a daily listener and a big fan since the pandemic. Okay, here's the question. Vanguard stopped holding my husband's SEP ira, so we were forced to use another brokerage firm. We moved all of our money from Vanguard to T. Rowe Price in kind. And we've been asked to do a new plan. We had personal advisor services at Vanguard. But the options at T Rowe Price are less great and with higher fees, do we hold our old accounts or sell and rebalance and pay taxes? I felt good about our plan and progress, but I'm worried about the tax implications of rebalancing. Hold on a second. Hold on one second. It's a SEP ira. Come on. A SEP ira? There's no tax that's due if you rebalance. So I need more information. I don't know if you've got other accounts that are brokerage accounts or not, but I'm interested. I got to learn a little more, Mary, because if you've got a brokerage account that needs to be rebalanced, that's one thing that would potentially carry a tax liability. But if we're rebalancing a sep, then there would be no tax liability. So keep an eye on that. Get back in touch with us.

[Mark]

I haven't heard anything about Vanguard not holding separates.

[Jill]

Yeah, I haven't either. So I don't know what that is all about.

[Mark]

Even if so, why wouldn't you just go from, you know, just roll it over into a rollover ira? Yeah, at Vanguard.

[Jill]

Unless it's just active plan.

[Mark]

Yeah, but they do have sense. I mean, I'm looking at it right now.

[Jill]

I don't know. Let's hear more back from her. We need to get a little more info Nation. Okay, last question. This is from sue and she writes. Hi, Jill and Mark. I listen to your podcast every. Don't you love everyone's? I listen every day. If you miss a day, don't worry, I won't. I won't be very upset. Just download it every day. That's all we need. We need the downloads gang. Okay. I appreciate the advice you give without making people feel bad about their situation. My question is about our High Yield Savings account. It was at 5%. Uh, now it's slowly gone down to 3.75%. I understand this is due to the Federal Reserve lowering interest rates. We've got about $250,000 in a cash account. We were wondering if we should look at a CD ladder or some other type of semi liquid cash account. We're in our early 60s. My husband is retired. I work part time only to get cheap medical insurance through my employer. God bless you, Sue. That's a brilliant idea. We have about $2.7 million in managed IRAs and brokerage accounts. Also $100,000 in checking and savings through a bank. We also have two rental properties and one primary. Everything paid off worth about $3.2 million. We net around 80 grand a year from the rentals. No debt. Kids are launched, outgoing each month 100 to 110,000. Thank you in advance for your wisdom and guidance. Keep up the good work. Well, Sue. Yeah, I'm fine with getting a bond ladder. It kind of looks like you're in fabulous shape. So if you've got $250,000 right and you are looking at a bond ladder, we could. There's two ways to think about it. One is like, okay, I could just do bonds or I could potentially do CDs. And I think if you look at the various opportunities for you, you might maybe go through. I don't know if you have to do this yourself or not, but I think that a CD or a bond ladder would be kind of great. And maybe I would do it with like in increments of where you really think you're going to need. When you think you're going to need the money. Maybe you would just say, okay, like I'll have six month CD for a chunk of money, like 50 and then another 50. 50 that would go one year. But then you could start using, maybe you could use longer term treasuries in general just to kind of throw some money out there. Doesn't look like you're using any of this money. So I think that it would be great to get that money working, but not at a high risk. If you're shy, don't worry. We do email episodes from time to time just like this one. So if you want to get in touch with us, go to Jill on money dot com, click the contact us button and write write us a note. We'll read it either on this show, on the Money Watch show, on our radio show. You never know where these emails end up, but we do try to answer everything. You can subscribe to us on the Odysee app or wherever you get your favorite podcast. Don't forget to leave us a rating and review. Wherever you listen, try to put your hands metaphorically on someone's back. Someone needs a little boost, a little pat on the back. It's really going to make them feel better. It's going to make you feel better. Change your work, change your wealth, change your life. Thank you for listening. We'll talk to you tomorrow.

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