The year 2026 is poised to be one of the most transformative periods for the Thrift Savings Plan (TSP) in over a decade. Driven by cost-of-living adjustments and new legislative mandates from the SECURE Act 2.0, these major changes will affect every federal employee—from new hires to those nearing retirement—by altering contribution limits, tax planning options, and investment strategies. Understanding these updates now is critical for maximizing your retirement savings, managing your tax burden, and ensuring your long-term financial security.
Increased Contribution Limits: Save More for Retirement
The Internal Revenue Service (IRS) has announced significant increases to the maximum contribution limits for 2026, giving federal employees a greater opportunity to save tax-advantaged dollars.
Standard Contribution Limit (Elective Deferral)
The maximum amount a participant can contribute to their Traditional and/or Roth TSP has increased:
- 2026 Limit: $24,500 (Up from $23,500 in 2025).
This increase of $1,000 is a powerful lever for all participants. For FERS employees, it’s especially important to spread contributions evenly across the year to ensure you receive the full 5% matching Agency Contributions, which stop once you hit the annual cap.
Age 50+ Catch-Up Contributions
For federal employees who are age 50 or older by the end of 2026, the standard catch-up contribution limit has also risen:
- 2026 Limit: $8,000 (Up from $7,500 in 2025).
When combined with the standard limit, this allows eligible employees to contribute up to $32,500 for the year. This provides a crucial boost to those nearing retirement who may be trying to make up for earlier savings shortfalls.
Special Catch-Up for Ages 60-63
The special “super catch-up” provision, established under SECURE Act 2.0 for participants aged 60 through 63, remains at its current level:
- 2026 Limit (Ages 60-63): $11,250 (Unchanged from 2025).
This allows employees in this age window to potentially save up to $35,750 in 2026, providing the highest annual savings opportunity in the plan.
Mandatory Roth Catch-Up for High Earners
One of the most impactful tax-related changes comes from the SECURE Act 2.0 and affects high-earning federal employees:
- The Rule: For 2026, if your wages are above the $150,000 limit, any catch-up contributions you make for that year must go into the Roth TSP. This requirement applies only to contributions made after you’ve hit the regular $24,500 limit. Keep in mind, though, that the wage threshold is still $145,000 for 2025—meaning your 2025 income determines what rules you’ll be subject to when making contributions in 2026.
- For more information on this, check out this video.
This is a mandatory change that requires higher earners to shift their catch-up strategy from pre-tax (Traditional) to after-tax (Roth). While it means paying taxes on those contributions now, the growth and future withdrawals will be tax-free, forcing a form of tax diversification for those who may have historically relied solely on the Traditional TSP.
The Game-Changer: In-Plan Roth Conversions
Perhaps the most eagerly anticipated change is the introduction of in-plan Roth conversions starting in 2026. This new feature fundamentally changes the way federal employees can manage their tax liability in retirement.
What is an In-Plan Roth Conversion?
Currently, your traditional (pre-tax) TSP dollars—including your agency match and all associated earnings—are fully taxable upon withdrawal in retirement.
- An in-plan Roth conversion allows you to move money directly from your Traditional TSP balance to your Roth TSP balance inside the plan.
- The converted amount is immediately counted as taxable income for the year the conversion takes place.
- Once converted, the funds and all future earnings grow tax-free, and qualified withdrawals in retirement are tax-free and not subject to Required Minimum Distributions (RMDs).
Strategic Planning and the Tax Catch
While this new option is a powerful tool for tax diversification, it requires careful planning:
- Tax Liability: You must pay the income tax on the converted amount. For example, converting $10,000 will add $10,000 to your taxable income for that year.
- External Funds Requirement: 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 amount you’re converting to pay taxes.
This conversion option is best used strategically during lower-income tax years, such as the gap between leaving federal service and starting Social Security/pension payments. It helps reduce the size of your Traditional balance, which, in turn, can lower future RMDs and give you greater control over your taxable income in your later retirement years.
L Fund Updates and New Digital Tools
In addition to the tax and contribution changes, the TSP recently updated its Lifecycle (L) Fund lineup to better reflect modern retirement timelines:
- L 2025 Fund: This fund was merged into the more conservative L Income Fund after reaching its target date.
- New L 2075 Fund: A new L Fund has been introduced for younger federal employees, or those early in their careers, with a target retirement date in the 2070s.
Participants who were in the L 2025 fund should be aware of this automatic shift and confirm the L Income Fund’s allocation still meets their risk tolerance.
To help federal employees navigate these complex changes, the TSP will also be rolling out new digital tools, including calculators and an in-plan Roth conversion estimator. These tools are designed to assist with tax planning and withdrawal modeling, empowering participants to run “what-if” scenarios before making critical, irreversible moves.
Your Action Plan for 2026
The 2026 TSP changes present both opportunities and potential pitfalls. Early planning is essential to maximize the benefits and avoid unexpected taxes or penalties.
- Review and Adjust Contributions: Recalculate your contributions to take full advantage of the new $24,500 limit (and the $8,000 catch-up limit, if eligible).
- Check High-Earner Status: If your 2025 wages exceeded $150,000, prepare to direct all 2026 catch-up contributions to the Roth TSP.
- Evaluate Roth Conversions: Begin modeling scenarios for in-plan Roth conversions, especially if you anticipate lower tax brackets in the coming years. Remember, you must have outside funds to pay the resulting tax bill.
- L Fund Allocation: If you were in the L 2025 Fund, or simply due for a review, evaluate the new L Fund lineup to ensure your chosen target date remains appropriate.
By proactively addressing these updates, federal employees can leverage the 2026 TSP changes to maximize growth, enhance tax diversification, and secure a more flexible and robust retirement.
