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July 9, 2025
TSP Roth Conversion 2026: Everything You Need to Know About In-Plan Conversions
Starting in 2026, federal employees and military members will have access to a major new feature within the Thrift Savings Plan (TSP): in-plan Roth conversions. This change will allow participants to convert their existing traditional TSP balances into Roth balances without transferring to an external IRA. For many savers, this new option could reshape long-term retirement strategies.
This blog breaks down everything you need to know from how it works and who it benefits, to potential tax implications and when to act. If you're considering the long-term tax advantages of Roth savings, this is a development you can’t afford to ignore.
What Is a TSP to Roth Conversion?
A TSP Roth conversion allows you to move money from your traditional (pre-tax) TSP account into a Roth (after-tax) account within the same plan. The biggest benefit? Once converted and qualified, Roth funds grow tax-free and can be withdrawn without future tax liability.
Previously, TSP participants who wanted to do this had to transfer their funds to an outside Roth IRA. But starting in 2026, the Federal Retirement Thrift Investment Board (FRTIB) will offer this feature in-plan, making conversions far more accessible.
Traditional vs. Roth TSP Contributions:
- Traditional TSP: Contributions are made pre-tax, grow tax-deferred, and are taxed upon withdrawal.
- Roth TSP: Contributions are made after-tax, grow tax-free, and qualified withdrawals are tax-free.
Survey and Investment Data
At the November meeting of the TSP governing board, officials confirmed that this long-requested feature would become available in 2026. A recent presentation revealed several key statistics:
- As of October 2025, $947 billion was invested in the TSP.
- Of that, $68 billion was held in Roth accounts.
- Out of 7.2 million total accounts, 2.7 million include Roth holdings.
- For employees under FERS (Federal Employees Retirement System), 1.1 million accounts hold Roth balances averaging $32,000 (out of an average total balance of $192,000).
Additionally, a participant survey showed:
- 24% of respondents understood Roth conversions and related tax implications.
- 35% said they would be "likely" or "extremely likely" to use this feature if offered.
These insights highlight both the growing interest in Roth options and the need for further education. Checkout the TSP calculator.
Why Is This a Big Deal for Federal Employees and Military Personnel?
- Convenience: No need to roll over to an outside Roth IRA.
- Security: Funds remain in your familiar, low-cost TSP environment.
- Tax Planning: Ideal for years when your income and tax bracket is lower.
How Will In-Plan Roth Conversions Work?
While full technical details will be released closer to the launch, here’s what we expect:
- You’ll be able to electively convert all or part of your traditional TSP balance into a Roth balance.
- Taxes will be due on the amount you convert in the year of conversion.
- No early withdrawal penalties apply, since this is not a withdrawal.
- The conversion will stay inside your TSP account no rollover required.
This aligns with Roth conversion mechanisms already available in private-sector 401(k) plans.
The Thrift Savings Plan (TSP) Rule of 55
Who Should Consider a TSP to Roth Conversion?
A Roth conversion isn’t right for everyone. You might benefit if:
- You expect to be in a higher tax bracket during retirement.
- You have cash on hand to cover the taxes owed at conversion.
- You want to reduce future RMDs and maximise tax-free income.
- You're planning for heirs and want to pass on tax-free money.
On the other hand, it might not make sense if you’re close to retirement, expect lower income in retirement, or don’t want the current-year tax hit.
Tax Implications and Considerations
- You pay income taxes on the amount converted.
- This may push you into a higher bracket for the year if not carefully managed.
- There are no early withdrawal penalties, but the taxes can be substantial depending on your income.
- Timing matters you may want to convert in years when you’re earning less or have large deductions.
It's wise to consult a tax adviser to understand your specific exposure.
What’s the Timeline?
According to the FRTIB, in-plan Roth conversions will begin in 2026, and the feature is being added in response to provisions in the SECURE 2.0 Act passed by Congress in 2022. This gives TSP administrators ample time to implement technical infrastructure, and gives you time to plan ahead.
Comparison: Roth IRA vs. Roth TSP
For many federal workers, a Roth TSP conversion may offer benefits that balance control and simplicity.
TSP Roth Conversion Strategy: Should You Do It?
- Consider partial conversions over multiple years to manage tax impact.
- Evaluate your current vs. expected future tax brackets.
- Factor in Social Security income, RMDs, and pension income.
Run projections or work with a financial planner to fine-tune the approach.
Conclusion: Plan Ahead to Maximise Your Roth Advantage
The upcoming TSP Roth conversion feature is a game-changer for federal workers and military members looking to enhance their retirement strategy. With in-plan options rolling out in 2026, now is the perfect time to review your tax situation, forecast your income needs, and plan conversions accordingly.
As always, a smart decision today can mean more financial freedom tomorrow.
FAQ
1. Will the TSP allow Roth conversions?
Yes. Starting in January 2026, the Thrift Savings Plan (TSP) will permit in-plan Roth conversions. This means participants can convert their existing traditional (pre-tax) contributions into Roth (after-tax) contributions within the plan.
2. What are the disadvantages of the Roth TSP?
- Fewer investment options compared to IRAs.
- Higher-income earners must pay taxes upfront on contributions.
- Early withdrawals may be subject to a 10% penalty.
- Some participants may not be eligible for matching contributions.
- Traditional TSP balances cannot currently be converted to Roth TSP—though this will change starting in 2026.
3. Will TSP automatically convert my contributions to Roth in 2026?
No. TSP will not automatically convert your entire balance. However, once you reach the annual elective deferral limit, any additional contributions you make in the same year must be Roth contributions, assuming you're eligible for catch-up contributions.
4. Do I still receive the 5% match if I contribute only to the Roth TSP?
Yes. You’ll still receive the full 5% agency match even if all your contributions go to the Roth TSP. However, the matching contributions are always deposited into your traditional TSP account, not your Roth TSP.
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