Convert TSP To Roth TSP - Roth In-Plan Conversions Coming in January 2026

Starting in January 2026, the Thrift Savings Plan (TSP) will introduce a major new feature: the ability to complete Roth in-plan conversions. This will allow you to move money from your traditional (pre-tax) balance into your Roth (after-tax) balance directly within your TSP account.

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If you don’t already have a Roth balance, your first conversion will create one. While this change gives federal employees a valuable tool for building tax-free retirement income, it also comes with important tax consequences. That’s why it’s essential to understand how it works and whether it’s the right move for your situation.

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What Is a Roth In-Plan Conversion?

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A Roth in-plan conversion allows you to shift pre-tax money from your traditional TSP balance into your Roth TSP balance. Once converted, that money will be treated as after-tax, meaning you’ll pay income tax on the converted amount in the year of conversion.

• The conversion amount is added to your taxable income.
  
  
• You must pay taxes from outside funds (such as savings). You cannot use your TSP funds to pay the tax bill.
  
  

Example: If you convert $30,000 and are in the 22% tax bracket, you could owe $6,600 in taxes that year. Those taxes must typically be paid from outside funds (such as a savings account). Because individual circumstances vary, it’s important to consult a qualified tax professional before deciding whether a conversion is right for you.

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Choosing Between Traditional and Roth Contributions

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At the heart of this decision is a simple question: When do you want to pay taxes now or later?

• Traditional contributions → Lower your taxable income today, but withdrawals are taxed in retirement.
  
  
• Roth contributions → Taxed now, but withdrawals in retirement can be completely tax-free (if conditions are met).
  
  

You also don’t have to choose just one you can split contributions between traditional and Roth for balance.

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Traditional TSP Explained

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• Contributions are made before taxes, reducing your taxable income today.
  
  
• Taxes are due when you withdraw funds, applying to both contributions and investment earnings.
  
  

Example: Contributing $1,000 to a traditional TSP could reduce your taxable income by $1,000, lowering your tax bill this year. But when you withdraw that $1,000 (plus any growth), you’ll pay tax at your future income tax rate.

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Roth TSP Explained

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• Contributions are made after-tax. You pay taxes now, before the money enters your TSP.
  
  
• Withdrawals in retirement are tax-free, as long as:
  
  
  
  • Five years have passed since your first Roth contribution, and
    
    
  • You’re at least 59½, permanently disabled, or deceased.
    
    

Another advantage: Beginning in 2024, Roth balances in employer retirement plans (including the TSP) are not subject to Required Minimum Distributions (RMDs). This rule change may give you additional flexibility in managing your retirement savings.

Example: If you withdraw $1,000 from your Roth TSP (qualified distribution), you keep the full $1,000. If it were traditional, you might only net $800 after taxes (assuming a 20% tax rate).

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Mixing Traditional and Roth TSP

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You don’t have to pick one or the other. Many federal employees contribute to both balances to hedge against future uncertainty. Your TSP keeps the balances separate for tax purposes.

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Agency/Service Contributions

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If you’re eligible for automatic or matching contributions, keep in mind:

• Agency/service contributions always go into your traditional balance, even if you designate your own contributions as Roth.
  
  
• Your contributions to Roth are still eligible for matching.

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Contribution Limits

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The IRS sets annual limits that apply to the combined total of traditional and Roth TSP contributions:

• Elective deferral limit (for 2024: $23,000; subject to increase by 2026).
  
  
• Catch-up contributions for those aged 50+ (2024: $7,500).
  
  

If you also contribute to a Roth IRA, that account has its own separate contribution limit and does not affect your TSP limits. These limits are adjusted periodically by the IRS and may change in future years.

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Special Rules for Uniformed Services & Combat Pay

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If you’re in the uniformed services and receive tax-exempt pay in a combat zone, the rules differ:

• Traditional TSP contributions from combat pay → principal is tax-free, but earnings are taxable upon withdrawal.
  
  
• Roth TSP contributions from combat pay → both principal and qualified earnings can be withdrawn tax-free.
  
  

For many service members, Roth is especially attractive in this situation.

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How Loans and Withdrawals Affect Your Balances

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When you take a loan or transfer, the funds are drawn proportionally from both traditional and Roth balances (based on your account ratio).

When making withdrawals, you can choose:

• Only from your traditional balance,
  
  
• Only from your Roth balance, or
  
  
• Proportionally from both.
  
  

This flexibility can help with tax planning.

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Deciding Between Roth and Traditional: Key Questions

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There’s no one-size-fits-all answer. The right choice depends on your tax situation now versus in retirement.

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Remember: you can split contributions and adjust as your situation changes.

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Two Final Reminders

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1. You’re not locked in you can switch between Roth and traditional contributions at any time.
   
   
2. Revisit your decision periodically. Your income, expenses, and tax situation will change over your career and into retirement.

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Conclusion – Prepare Now for Roth In-Plan Conversions

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The introduction of Roth in-plan conversions in January 2026 will provide federal employees with a new option to manage their retirement savings. Depending on your personal situation, this feature may help diversify your tax strategy and create flexibility, but it also involves important tax considerations.

But it also comes with a tax bill today, and the decision isn’t simple. The right move depends on your income, tax bracket, and retirement goals.

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At Federal Pension Advisors, we connect federal employees with independent advisors to understand their TSP options, pensions, and retirement planning needs. If you’re considering a Roth in-plan conversion, a qualified financial advisor can help you evaluate whether this strategy aligns with your goals. We invite you to schedule a consultation with an independent advisor to discuss your personal situation.

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FAQ'S.

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What are the disadvantages of Roth TSP?

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The main disadvantage of the Roth TSP is that you pay taxes upfront on your contributions, reducing your take-home pay today. If your income is higher now but will be lower in retirement, you could end up paying more in taxes than if you used the traditional TSP. Another drawback is that agency or service contributions always go into the traditional TSP, not the Roth side. Finally, Roth withdrawals are only tax-free if you meet the five-year rule and are at least age 59½.

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Do I still get the 5% match if I contribute all to the Roth TSP?

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Yes, you still receive the full 5% agency/service match even if all of your contributions go into the Roth TSP. However, the matching contributions are always placed in your traditional TSP balance, not the Roth balance. This means that even if you only contribute to Roth, you’ll still accumulate a traditional TSP portion through the employer match.

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At what age does a Roth conversion not make sense?

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For some individuals already in retirement, especially those in lower tax brackets than during their working years, paying taxes upfront through a conversion may not provide as much benefit. The potential value of a conversion should be considered in light of your tax bracket, time horizon, and estate planning goals. It may also be unwise if you don’t expect to keep the converted funds invested for at least five years, since you won’t get the full tax-free benefit.

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How much tax will I pay on a Roth conversion?

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The amount of tax you pay on a Roth conversion depends on your tax bracket and the size of the conversion. The converted amount is added to your taxable income for that year and taxed as ordinary income. For example, if you convert $20,000 while in the 22% tax bracket, you would owe about $4,400 in taxes. It’s important to use outside funds to pay this tax bill, not your TSP money, to preserve your retirement savings.