TSP Traditional to Roth Conversion

A major update is on the way for federal employees and military service members who save through the Thrift Savings Plan. Beginning in January 2026, the plan will introduce a new feature that allows participants to convert their traditional retirement savings into Roth savings without moving their money out of the program. 

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TSP Traditional to Roth conversion implies that you can take money from your traditional balance, pay the required taxes for that year, and move it into your Roth balance all within the plan itself, without needing a rollover to an outside account.

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This change removes one of the long-standing limitations of the plan and opens new opportunities for tax-efficient retirement planning.

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Understanding the Thrift Savings Plan

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The Thrift Savings Plan is the retirement savings program for United States federal workers and members of the military. It works much like a private sector employer-sponsored retirement plan, offering both traditional and Roth contribution options. Until now, moving money from a traditional balance into a Roth balance within the plan was not allowed. Participants who wanted Roth savings had to roll over their funds into a Roth individual retirement account.

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Traditional and Roth Contributions

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• Traditional contributions are made with pre-tax dollars. They reduce your taxable income in the year you contribute, but all withdrawals in retirement are subject to income tax.
  
  
• Roth contributions are made with after-tax dollars. You pay taxes up front, but qualified withdrawals in retirement, including earnings, are completely tax-free. Roth accounts also avoid required minimum distributions, giving you greater flexibility later in life.
  
  

Up to now, once money was placed into a traditional Thrift Savings Plan account, it could not be converted to Roth inside the plan. That is the key change coming in 2026.

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What the New Rule Allows

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Starting in January 2026, participants will be able to move money from their traditional balance to a Roth balance directly inside the Thrift Savings Plan. This in-plan conversion means you no longer need to transfer funds to an outside Roth individual retirement account if your goal is to shift savings into a Roth.

Here is how it works:

• You will pay ordinary income tax on the amount you convert in the year of the conversion.
  
  
• Once converted, the money will grow tax-free.
  
  
• Withdrawals that meet Roth rules in retirement will not be taxed.
  
  
• Roth balances in the Thrift Savings Plan are not subject to required minimum distributions.
  
  

The plan has set a five-hundred-dollar minimum amount for conversions and will provide an online calculator to help estimate tax obligations before you act.

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Timeline and Support

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The Federal Retirement Thrift Investment Board has announced the feature will go live in January 2026. Leading up to the rollout, the plan is to prepare system updates and educational tools so that participants can make informed choices.

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Why It Matters for Military Service Members

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This change can be especially powerful for members of the military. Many service members experience years of lower taxable income during deployments or active duty. Converting traditional savings to Roth during those periods may allow them to pay lower taxes on the converted funds while locking in the long-term benefit of tax-free growth and withdrawals.

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Because Roth savings are free of required minimum distributions, they also give greater control over how and when retirement income is used. This flexibility can help plan around military pensions or other benefits.

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Planning Ahead

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Even though the new option does not begin until 2026, it is wise to start considering whether Roth conversions align with your retirement goals. Conversions increase taxable income in the year they are made, so timing matters. In some cases, spreading out conversions over several years may help reduce overall taxes.

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Every situation is unique, and the right choice depends on your income, your expected retirement needs, and your long-term tax outlook. Professional guidance can be valuable for weighing the pros and cons.

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Conclusion

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The upcoming in-plan Roth conversion option is a game-changing update for the Thrift Savings Plan. By allowing participants to move money from traditional to Roth balances inside the system, it removes complexity and creates new opportunities for tax-efficient retirement planning.

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For federal employees and military service members, this new flexibility could mean stronger long-term outcomes and more control over how savings are used in retirement. With thoughtful planning, the 2026 update can be a powerful tool to help secure a more confident financial future.

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FAQs

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What is the 5-year rule for Roth TSP?

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The 5-year rule means your Roth TSP earnings can only be withdrawn tax-free if you’ve had the account for at least five years and you are age 59½ or older, permanently disabled, or deceased.

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Can I convert my traditional IRA to a Roth IRA without penalty?

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Yes, you can. When you convert a traditional IRA to a Roth IRA, you won’t face the 10% early withdrawal penalty. However, you will owe income taxes on the converted amount.

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Is Roth TSP better than traditional TSP?

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It depends on your tax situation. Roth TSP is better if you expect to be in a higher tax bracket in retirement since you pay taxes now. Traditional TSP works better if you want to reduce taxable income today and expect a lower tax bracket later.

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What is the new TSP rule 2026?

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Starting in 2026, TSP participants will be allowed to convert traditional TSP balances into Roth TSP directly inside their plan. This gives service members and federal employees more flexibility with tax planning.

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