TSP Roth Conversion 2026: Everything You Need to Know About In-Plan Conversions

Update (Effective January 2026):
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The Federal Retirement Thrift Investment Board (FRTIB) has confirmed that in-plan Roth conversions will be available starting in 2026, under provisions of the SECURE 2.0 Act of 2022. This long-requested feature will allow participants to convert traditional (pre-tax) TSP balances into Roth (after-tax) balances without transferring funds to an outside IRA.

For many federal employees and service members, this change could be a game-changer in tax and retirement planning.

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What Is a TSP Roth Conversion?

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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.

• Traditional TSP: Contributions are pre-tax, grow tax-deferred, and are taxed at withdrawal.
  
  
• Roth TSP: Contributions are after-tax, grow tax-free, and qualified withdrawals are tax-free.
  
  

Previously, savers had to roll funds into a Roth IRA to achieve this. Starting in 2026, in-plan conversions will make the process simpler, safer, and more convenient.

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Why Is This a Big Deal for Federal Employees and Military Personnel?

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• Convenience: No need to roll over to an external Roth IRA.
  
  
• Security: Funds remain in the TSP a familiar, low-cost environment.
  
  Tax Planning Flexibility: Useful in years when your income is lower and your tax bracket is reduced.

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Survey and Investment Data

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At a November 2025 board meeting, FRTIB officials confirmed the rollout of in-plan conversions. Some key insights:

• As of October 2025, $947 billion is invested in the TSP.
  
  
• $68 billion of that is in Roth accounts.
  
  
• Of 7.2 million total accounts, 2.7 million hold Roth balances.
  
  
• Among FERS employees, Roth balances average $32,000, compared to $192,000 overall.
  
  
• In a recent participant survey:
  
  
  • 24% understood Roth conversions and tax rules.
    
    
  • 35% said they would likely use this new feature.
    
    

This highlights growing interest in Roth savings but also the need for education.

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How Will In-Plan Roth Conversions Work?

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While more technical guidance will be released, here’s what we know:

• You can convert all or part of your traditional TSP balance.
  
  
• The converted amount will be taxed in the year of conversion.
  
  
• No early withdrawal penalties apply.
  
  
• Funds stay within TSP no outside rollover required.
  
  
• The feature will align with Roth conversion rules already available in private-sector 401(k) plans.

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The TSP Rule of 55

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The Rule of 55 still applies: federal employees who separate from service in or after the year they turn 55 can withdraw from TSP without penalty. Combining this with Roth conversions may give mid-career employees more flexibility in shaping their retirement strategy.

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Who Should Consider a TSP Roth Conversion?

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You may benefit if you:

• Expect to be in a higher tax bracket during retirement.
  
  
• Have cash outside your TSP to cover conversion taxes.
  
  
• Want to reduce future RMDs (required minimum distributions).
  
  
• Are planning to leave tax-free assets to heirs.
  
  

It may not make sense if you:

• Are close to retirement and expect a lower retirement income.
  
  
• Don’t want a large current-year tax bill.
  
  
• Prefer tax deferral now rather than tax-free withdrawals later.

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Tax Implications and Advisor Insight

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A Roth conversion is not free money taxes apply on the converted amount.

• The converted sum is added to your taxable income for the year.
  
  
• This could push you into a higher bracket if not managed carefully.
  
  
• No early withdrawal penalties apply, but the IRS will get its share upfront.
  
  

Advisor Insight:

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If you expect higher future tax rates or want to leave Roth money to heirs converting earlier can save thousands long-term. But avoid converting your entire balance at once. Partial conversions across multiple years may help spread out the tax hit.

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Case Example: Managing the Tax Impact

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Let’s say you convert $50,000 from traditional TSP to Roth in 2026, and you’re in the 22% tax bracket.

• Added taxable income: $50,000
  
  
• Taxes owed: $11,000
  
  
• Long-term benefit: The $50,000 plus decades of compounding growth can now be withdrawn tax-free in retirement.
  
  

By contrast, if you left it in the traditional TSP, you’d owe taxes on both the $50,000 and all future growth.

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Timeline: When Will This Take Effect?

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• 2022: SECURE 2.0 Act passed, authorising in-plan Roth conversions.
  
  
• 2025: FRTIB confirmed rollout at board meeting.
  
  
• January 2026: Federal employees and military members will gain access to in-plan conversions.
  
  

This gives participants a year to plan ahead, evaluate tax scenarios, and coordinate with advisors.

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Roth IRA vs. Roth TSP: Key Differences

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Bottom line: Roth TSP provides higher contribution potential and simplicity, but Roth IRAs still offer more flexibility and no RMDs.

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TSP Roth Conversion Strategy: Should You Do It?

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• Consider partial conversions over several years.
  
  
• Compare your current vs. expected future tax brackets.
  
  
• Factor in other income (Social Security, pensions, RMDs).
  
  
• Run projections  or work with a financial planner before acting.

Conclusion: Plan Ahead for the 2026 TSP Roth Conversion

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The introduction of in-plan Roth conversions in 2026 is one of the most significant updates to the Thrift Savings Plan in years. For federal employees and military members, this new option creates opportunities for greater tax control, long-term growth, and flexibility in retirement planning.

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But with opportunity comes complexity. A poorly timed conversion could create an unexpected tax bill, while a well-planned strategy could save thousands and provide a stronger financial legacy. By evaluating your current tax bracket, retirement goals, and income needs and working with a trusted advisor you can decide whether a Roth conversion fits into your overall plan.

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Bottom line: Start preparing now. The earlier you understand the rules and map out your strategy, the better positioned you’ll be to take advantage of this retirement game-changer in 2026.

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FAQs

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What are the disadvantages of Roth TSP?

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The main disadvantages of a Roth TSP include:

• Taxes upfront – Contributions are made after-tax, reducing your take-home pay now.
  
  
• Required Minimum Distributions (RMDs) – Unlike Roth IRAs, Roth TSP accounts are subject to RMDs once you reach age 73.
  
  
• Limited investment choices – You can only invest in TSP funds, which offer less flexibility compared to IRAs.
  
  

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

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Yes. You’ll still receive the full 5% government match if you contribute entirely to the Roth TSP. However, keep in mind that all agency or service matching contributions automatically go into your traditional TSP balance, even if your contributions are designated as Roth.

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What is the loophole for Roth IRA conversion?

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The common “loophole” is the backdoor Roth IRA conversion. This strategy allows high-income earners who exceed Roth IRA income limits to contribute to a traditional IRA (which has no income limits) and then convert those funds into a Roth IRA. This bypasses the direct income restrictions on Roth contributions.

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Can I move money from my TSP to a Roth IRA?

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Yes, you can transfer or roll over money from your TSP into a Roth IRA. However, when you move pre-tax traditional TSP funds into a Roth IRA, it is treated as a Roth conversion meaning the amount rolled over becomes taxable income in the year of transfer. Always consult a tax advisor before making the move to avoid unexpected tax bills.

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Refference taken from - TSP goverment