Starting January 28, 2026, the Thrift Savings Plan (TSP) is launching Roth in-plan conversions, a new feature that allows federal employees to convert their traditional TSP account balances to Roth TSP accounts within the plan.
What are Roth in-plan conversions, and how will they work?
What is a Roth In-Plan Conversion?
A Roth in-plan conversion allows you to move money from your traditional (pre-tax) TSP account to your Roth (after-tax) TSP account. This means you convert some or all of your traditional balance into Roth funds within the same TSP account.
It is a taxable event, so careful planning and working with a tax advisor is important to ensure you understand the tax ramifications and are prepared to pay the taxes that will be owed.
Who is Eligible for TSP Roth In-Plan Conversions?
Roth in-plan conversions are available to all TSP participants:
- Active participants (current federal civilian employees and uniformed services members)
- Separated and retired participants
- Spouse beneficiary participants
Non-spouse beneficiaries are not eligible for Roth in-plan conversions.
Why Consider a Roth Conversion?
- Tax Benefits: When you convert to Roth, you pay taxes on the converted amount now, but future qualified withdrawals from the Roth account are tax-free.
- Tax Diversification: Having both traditional and Roth balances can provide flexibility in retirement tax planning.
How Will the Roth In-Plan Conversion Work?
Eligible TSP participants can request a maximum of 26 Roth conversions per account within a calendar year.
Eligible participants and their spousal beneficiaries can request a Roth in-plan conversion through My Account on the TSP website. Participants have the option to request a specific dollar amount (the default choice) or a percentage of their eligible funds. Spousal consent is not required for completing a conversion.
Contributions and earnings in your traditional TSP balance are eligible for conversion. When you choose your conversion amount, the money will be taken proportionally from your eligible contribution sources:
- Your own traditional payroll contributions
- Agency/Service Matching Contributions (if applicable)
- Agency/Service Automatic (1%) Contributions (if applicable)
- Traditional rollover contributions you’ve made
The minimum conversion amount is $500. (Note: If a participant selects a specific dollar amount or percentage, and the amount falls below $500 after market close, the conversion will still be processed for the available amount.)
Additionally, eligible participants in an Active or Separated employment status must leave $500 in each non-Roth payroll account source (Traditional, Tax-exempt, Automatic 1%, and Agency Match accounts) to support potential future payroll corrections.
Roth in-plan conversions requested before noon Eastern Time will be processed after market close on the same business day. Conversions requested after noon Eastern Time will be processed after market close on the next business day.
Roth in-plan conversions are irrevocable, so once the transaction is processed, it cannot be reversed or altered.
If you’re subject to Required Minimum Distributions (RMDs), you must withdraw the RMD amount before you can make a Roth in-plan conversion each year. You can’t satisfy the RMD amount by converting money from your traditional TSP balance to your Roth TSP balance.
Also, investments in the TSP’s mutual fund window are not eligible for Roth conversions.
Example
Because the minimum conversion amount is $500 and at least $500 must be left in each non-Roth payroll account source, the TSP has provided this example to help illustrate the process.
In this hypothetical scenario, a TSP participant has the following vested balances and amounts eligible to convert to Roth (assuming a $500 restriction on each non-Roth payroll account source):
| Source | Vested Balance | Amount Eligible to Convert to Roth |
|---|---|---|
| Traditional | $6,000 | $5,500 |
| Tax-Exempt | $500 | $0 |
| Match | $3,500 | $3,000 |
| Automatic 1% | $1,000 | $500 |
| Tax-Deferred Rollover | $2,000 | $2,000 |
If he elects to convert $10,000 from traditional to Roth, the balances would be converted as follows, with the eligible sources converted on a pro rata basis:
| Source | Amount Eligible to Convert to Roth | Converted Balance |
|---|---|---|
| Traditional | $5,500 | $5,000 |
| Tax-Exempt | $0 | $0 |
| Match | $3,000 | $2,727.27 |
| Automatic 1% | $500 | $454.55 |
| Tax-Deferred Rollover | $2,000 | $1,818.18 |
The calculation for the pro rata conversion is: ((source balance after $500 hold back amount / total eligible amount) * total elected conversion amount)
Important Tax Considerations
Roth in-plan conversions are a taxable event, so you will owe taxes in the year that you make the conversion.
The TSP recommends asking these four questions when considering them:
- How will it affect my taxable income for the year?
- How much income tax will I need to pay on the amount of money I convert?
- Will this conversion raise my federal marginal tax rate?
- Do I have enough money to pay the income tax on the conversion?
When you convert pre-tax money from your traditional TSP balance, the amount you convert in the Roth in-plan conversion becomes part of your taxable income for the year, therefore, you will be required to pay income tax on the conversion at your applicable tax rate. Because it increases your total income, it could push you into a higher tax bracket.
You are required to pay the income tax on the conversion amount using personal funds from another source (i.e. a savings account). You cannot use a portion of the amount you are converting to pay the taxes.
Because there is no withholding on Roth in-plan conversions and the amount converted is taxable at the time of conversion, you may be required to make estimated tax payments to the IRS. The TSP reports the total amount of any conversions you make during the year to the IRS and other state tax agencies as required. They will also be reported to you on IRS Form 1099-R.
Given the tax complexities involved in the process, it is very important to consult a tax advisor as part of your planning process before you make the conversion and also to assist you with making any estimated tax payments so you avoid getting hit with underpayment penalties from the IRS.
Five-Year Rules That Apply to Roth Conversions
There are two separate five-year rules that apply to your Roth TSP balance after completing a Roth in-plan conversion.
Five-Year Rule for Roth Earnings
The first five-year rule applies only to the earnings in your Roth TSP balance and determines whether you can withdraw those earnings tax-free. Earnings refer to the money that has accumulated over time from your TSP investments, including contributions and conversions.
Roth earnings are not taxed if the distribution is “qualified.” For Roth earnings to be qualified and tax-free, they must meet both these IRS requirements:
- 5 years have passed since January 1 of the calendar year in which you made your first Roth TSP contribution (or your first Roth in-plan conversion if your first conversion creates your Roth TSP balance).
- You have reached age 59½, have a permanent disability, or are deceased.
Failing to meet both requirements means they are not qualified, so you will pay income tax when you withdraw them.
Five-Year Rule for Converted Amounts
The second five-year rule applies only to money transferred from your traditional TSP balance to your Roth TSP balance. Each Roth in-plan conversion initiates a five-year clock that commences on January 1 of the year of each conversion. If you withdraw money that includes converted funds within five years of conversion, you must pay a 10% early withdrawal penalty tax to the IRS, unless an exception applies, such as being age 59½ or older.
This five-year rule applies only to the money you converted, not the earnings on that money. It’s designed to prevent people under 59½ from avoiding the early withdrawal penalty by converting to Roth and is separate from the five-year rule that determines whether your Roth earnings are qualified and can be withdrawn tax-free.
Remember…
The launch of Roth in-plan conversions are an exciting development for federal employees who participate in the TSP and can be a helpful tool in building your retirement savings, but they are complex and require careful planning.
TSP participants who have questions about them should consult with financial advisors, tax advisors, agency payroll offices and the TSP as needed for assistance.
These resources provide additional helpful information:
- Roth In-Plan Conversions (TSP.gov)
- TSP Bulletin About Launch of Roth In-Plan Conversions
- Tax Rules About TSP Payments (TSP.gov)
