With the Thrift Savings Plan’s Roth in-plan conversion option less than a week away, many federal employees and retirees are taking a closer look at how this long-anticipated change could affect their long-term tax strategy.
Beginning January 28, 2026, the TSP will allow participants to convert eligible traditional (pre-tax) TSP balances into Roth (after-tax) balances directly inside the plan. Until now, federal employees who wanted to convert pre-tax savings to Roth typically had to roll funds out of the TSP and complete the conversion elsewhere. This new option keeps the process entirely within the TSP.
What Is a Roth In-Plan Conversion?
A Roth in-plan conversion allows you to move money from your traditional TSP balance, which has not yet been taxed, into a Roth TSP balance, where future qualified withdrawals can be tax-free.
The key trade-off is timing:
- You pay income taxes now on the amount converted.
- In exchange, qualified Roth withdrawals in retirement may be tax-free, including earnings.
This option is available to active employees, separated or retired participants, and spouse beneficiaries, as long as the funds being converted are vested.
Tax Implications to Consider
Converted amounts are treated as ordinary taxable income in the year of the conversion. The TSP will not withhold taxes, meaning participants are responsible for planning ahead, often through estimated tax payments or increased withholding elsewhere.
Because conversions can push income into a higher tax bracket or impact Medicare premiums and other income-based thresholds, careful tax planning is critical. Once completed, conversions are irrevocable.
Key Rules and Limits
Participants should be aware of several important guidelines:
- Minimum conversion amount: $500
- Maximum frequency: Up to 26 conversions per calendar year per TSP account
- Source of funds: Conversions are taken proportionally from eligible traditional balances, including agency contributions and rollovers
- Required Minimum Distributions (RMDs): RMDs must be taken first in years when they apply before any conversion is allowed
- For contribution sources that include payroll contributions and agency/service contributions, there must be a minimum of $500 left after a Roth in-plan conversion.
- If one of the sources in your traditional balance has $500 or less, then the conversion amount will be taken only from the other sources in your account.
- Rollover contributions don’t have a minimum leave-behind amount.
- Spouse beneficiary participant accounts aren’t subject to a leave-behind amount.
- There is no maximum limit to how much you can convert, other than the leave-behind amounts that apply to your account.
The IRS five-year rules for Roth accounts also apply, affecting when converted funds and earnings can be withdrawn tax-free.
Why This Matters for Retirement Planning
For federal employees approaching retirement, or already retired, this new option adds flexibility, but also complexity. Before making a move, speak with a Federal Retirement Consultant (FRC®) who can help create a long-term retirement strategy.
