Starting January 2026, federal employees and retirees will gain access to a transformative feature within the Thrift Savings Plan (TSP): Roth in-plan conversions. This new option allows participants to convert pre-tax assets into Roth assets, paving the way for potentially significant long-term retirement savings and tax advantages.
How Do Roth TSP Contributions Work?
Roth TSP contributions are made after taxes are deducted from your paycheck, meaning you pay taxes upfront at your current income tax rate. The key benefit? When you retire and withdraw your contributions and qualified earnings, they are tax-free.
Qualified earnings meet two criteria:
- Five years must have passed since January 1 of the calendar year when you made your first Roth TSP contribution.
- You must be at least age 59½, permanently disabled, or deceased.
Roth TSP accounts also offer a major advantage by being exempt from required minimum distributions (RMDs). This can help retirees preserve their savings and avoid higher tax brackets triggered by mandatory withdrawals.
What Is a Roth TSP Conversion?
A Roth TSP conversion will allow participants to transfer funds from their Traditional TSP to their Roth TSP, creating a taxable event. The amount converted is treated as taxable income for the year, but the taxes must be paid with external funds, not TSP assets.
The TSP notes:
When you convert pre-tax money from your traditional TSP balance, your Roth in-plan conversion amount will become part of your taxable income for the year. This means that you’ll pay income tax on the conversion amount based on your income tax rate. You must pay the income tax on the conversion amount using personal funds from another source, such as a savings account. You cannot use part of the conversion amount in your TSP account to pay taxes.
Why Is This Important?
Currently, federal employees face limitations when attempting to convert Traditional TSP funds to Roth assets. They must transfer funds to a Roth IRA, and active employees can only do so if they are separated from service or aged 59½ or older.
Starting in 2026, in-plan Roth TSP conversions will simplify this process, offering greater flexibility and convenience.
The TSP has also announced that it is developing a calculator to let TSP participants estimate the effects of converting traditional money to Roth money within their TSP accounts. More information about this and the upcoming in-plan Roth conversions will be forthcoming in the coming months.
Tax Bracket Management Strategies
Roth TSP conversions can be a powerful tool for managing your tax brackets over time. By strategically converting funds, you can “fill up” lower tax brackets in years when your income is lower, minimizing your overall lifetime tax liability.
For example, if you find yourself in the 12% tax bracket, you might choose to convert just enough funds to stay within that bracket, avoiding a jump to the 22% bracket. This approach requires careful planning and a clear understanding of your current and projected income levels.
Because each taxpayer’s situation is unique—and Roth conversions impact your taxable income and possibly your Medicare premiums—it’s essential to consult a qualified tax professional before making conversion decisions. This article is for educational purposes and does not constitute financial or tax advice.
Comparing Roth TSP and Roth IRA Options
As you consider a conversion strategy, it’s important to understand how Roth TSP and Roth IRA accounts differ. While both offer tax-free growth and withdrawals under qualifying conditions, they come with distinct rules and advantages.
For 2025, the Roth TSP contribution limit is $23,000, with an additional $7,500 catch-up contribution allowed for participants aged 50 or older. There are no income limits on eligibility, unlike a Roth IRA.
Roth IRA contributions are more limited—$7,000, or $8,000 with catch-up—but eligibility is subject to income limits. In 2025, those phase out completely at a modified adjusted gross income (AGI) of $161,000 for single filers and $240,000 for married couples filing jointly.
| Feature | Roth TSP | Roth IRA |
|---|---|---|
| Contribution Limits | $23,000 (plus $7,500 if 50+) | $7,000 (plus $1,000 if 50+) |
| Income Limits | None | Applies—eligibility may phase out |
| RMDs | None, starting 2024 | Never required |
| Investment Options | TSP core funds plus Mutual Fund Window (limited access to thousands of mutual funds) | Broad range of securities |
| Withdrawal Flexibility | More restrictive | More flexible |
Long-Term Savings in the TSP
The TSP is a powerful tool that federal employees can use to build wealth over the course of their federal careers. Data on the growing numbers of TSP millionaires prove that using the TSP to save and invest regularly over a long period of time can create substantial wealth for retirement.
These are some of the common traits of the federal employees who have built up balances of $1 million or more in their TSP accounts:
- Career Duration: Most TSP millionaires worked for the federal government for 25-30+ years.
- Consistent Contribution: TSP millionaires consistently contributed to their TSP accounts, often at or near the IRS maximum contribution limits.
- Investment Strategy: TSP millionaires typically allocated a significant portion of their investments to stock funds (C Fund, S Fund, I Fund) for higher long-term returns.
- Investment Strategy: TSP millionaires rarely react emotionally to market downturns, keeping their money invested in stock funds and continuing contributions.
- Compounding Growth: By avoiding loans and withdrawals, TSP millionaires allow their investments to compound over time, contributing to their millionaire status.
The TSP has long been a cornerstone of federal retirement planning. With Roth conversions entering the mix, participants will soon have more tools to build their financial futures. With the right strategy, this new feature could be an important part of your retirement plan.
