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🚨 Big News for Federal Employees & Retirees! 🚨
Roth in-plan conversions are coming to the Thrift Savings Plan (TSP) starting January 2026! In this video, we explain exactly what Roth in-plan conversions are, how they impact your retirement savings, and what federal employees and retirees need to know to take advantage of this new TSP option.
✅ Learn the benefits of Roth in-plan conversions
✅ Understand how this change affects your TSP and retirement strategy
✅ Key considerations before making the switch
Don’t miss out on this important update to your TSP! Watch now and stay prepared for the 2026 changes.
🔔 Subscribe for more TSP and federal retirement updates!
#RothIRA #FederalRetirement #ThriftSavingsPlan #TSPUpdates #RetirementPlanning #RothConversion
Related articles
What Federal Employees Need to Know About Upcoming Roth In-Plan Conversions in the TSP
https://www.fedsmith.com/2025/11/24/what-federal-employees-need-to-know-about-upcoming-roth-in-plan-conversions-in-the-tsp/
Roth Conversions For TSP Investors Coming January 28, 2026
https://www.fedsmith.com/2025/11/20/roth-conversions-for-tsp-investors-coming-january-28-2026/
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0:00
Hello everyone. I'm Ian Smith here with
0:02
fedsmith.com. Here to talk to you today
0:04
about Roth Inplan conversions. They're
0:08
coming soon to the Thrift Savings Plan.
0:10
The TSP announced that they will be
0:12
available starting January 28th, 2026.
0:16
And this is exciting news. A lot of our
0:18
readers on the fedsmith.com website have
0:21
commented that this is a feature they've
0:23
wanted for many years. So, what are Roth
0:27
inplan conversions and how do they work
0:28
and why should you care about this? How
0:31
might it benefit your retirement
0:32
savings? Let's take a look. So, what is
0:35
a Roth inplan conversion? It allows you
0:39
to move or convert money from your
0:42
traditional or pre-tax TSP account to
0:46
your Roth or after tax TSP account. So,
0:50
why would you want to do this? Well, it
0:53
offers long-term tax benefits.
0:56
Say that you're a 30-year-old federal
0:58
employee saving in your TSP and you move
1:00
money from traditional over to Roth.
1:03
That's a taxable event. You'll pay the
1:04
taxes on it now, but that money is going
1:07
to sit there and grow because it's
1:10
invested in the TSP funds for maybe 30
1:13
to 40 years. If you're 30 years old, you
1:16
retire in your 60s, even 70s. That's a
1:19
long time. And all of that money will
1:22
grow tax-free now that it's been moved
1:25
over to the Roth account. And once you
1:27
reach retirement, qualified withdrawals
1:30
are tax-free in retirement. So you pay
1:32
the taxes upfront, pay them now on the
1:35
conversion, the money grows over time,
1:39
and then it's not taxed again on on the
1:41
qualified withdrawals. And so that's
1:44
potential savings of even hundreds of
1:46
thousands of dollars in taxes
1:48
potentially depending on how much you
1:50
invest and how it's invested and
1:52
whatnot. But again, it's a taxable
1:55
event. It's a complex process. So you do
1:58
want to understand how all of this
2:00
works. That's something I'm going to
2:01
repeat a few times in this video. I want
2:03
to make very sure. Plan carefully. This
2:06
isn't something you're going to want to
2:07
just click a button and go off and do.
2:10
You'll want to consult with financial
2:12
advisors, tax advisors, etc. for your
2:14
situation to see would this be
2:16
beneficial for you. How will these work?
2:19
All TSP participants are eligible. The
2:22
only exception is non-spouse
2:24
beneficiaries. According to the TSP,
2:27
you can request a maximum of 26 Roth
2:29
conversions per account per year.
2:32
Participants will be able to request a
2:35
specific dollar amount for the Roth
2:37
conversion. That's the default choice.
2:39
for a percentage of their eligible funds
2:41
to convert. The minimum conversion
2:43
amount is $500. And also, you must leave
2:47
at least $500 in each nonroth payroll
2:51
account source. So, traditional
2:53
taxexempt automatic 1% and agency match
2:56
accounts to support potential future
2:59
payroll corrections.
3:02
Also, when you choose your conversion
3:04
amount, the money will be taken
3:06
proportionally from your eligible
3:07
contribution sources. So, your own
3:11
traditional payroll contributions,
3:14
agency or service matching contributions
3:16
if applicable, agency or service
3:18
automatic 1% contributions if
3:21
applicable,
3:22
traditional rollover contributions
3:24
you've made. The TSP mutual fund window
3:27
investments are not eligible for Roth
3:30
and plan conversions. And these
3:32
conversions are also irrevocable. So
3:34
once you submit them, there's no going
3:36
back. It can't be undone. And that's
3:38
something to be aware of also in your
3:40
planning.
3:42
Important tax considerations.
3:44
Remember this is a taxable event. So
3:47
when you do these conversions, it raises
3:51
your total taxable income for the year
3:53
and you have to pay taxes on it. Now,
3:55
even though the money will grow tax-free
3:58
over time, with that in mind, the TSP
4:02
recommends asking these four questions
4:04
when considering whether or not to do
4:06
Roth in plan conversions.
4:08
Number one, how much or how, excuse me,
4:11
how will it affect my taxable income for
4:13
the year? Number two, how much income
4:16
tax will I need to pay on the amount of
4:18
money I convert? Number three, will this
4:20
conversion raise my federal marginal tax
4:23
rate? And number four, do I have enough
4:25
money to pay the income tax on the
4:27
conversion? That's very important.
4:30
Converting the pre-tax money from your
4:32
traditional TSP balance to a Roth in
4:35
plan conversion increases your taxable
4:38
income for the year. So you'll pay
4:41
income tax on the conversion of your
4:42
applicable rate. Because it's increasing
4:45
your taxable income for the year, you're
4:48
you may end up in a higher tax bracket
4:50
by doing the conversion. Say your annual
4:53
total income for the year is $100,000.
4:56
You convert say $50,000
4:59
in this one of these Roth conversions.
5:01
Now your total taxable income is
5:02
$150,000.
5:04
You could end up in a higher tax
5:06
bracket, meaning you'll pay more taxes
5:08
on the the higher amounts. That's called
5:11
bracket bumping. And again, that's why
5:14
it's very important to consult with the
5:16
tax advisor. Make sure you understand
5:17
all of this. Um, also when you pay the
5:21
tax, the income tax on the conversion,
5:25
uh, it must be from another source
5:26
according to the TSP such as a savings
5:29
account. You cannot use a portion of the
5:31
money you're converting to pay the
5:32
taxes. That's also very important. The
5:34
TSP is not going to withhold that money
5:36
back for taxes. And because there is no
5:38
withholding done at the time of the
5:40
conversion, you may have to make
5:42
estimated payments to the IRS
5:45
on the uh, amount of money you're
5:47
converting. If you don't make the
5:49
estimated payments, then you can get
5:52
penalties on top of what you already owe
5:56
in taxes. So, say you do a Roth
5:58
conversion in the summer and you don't
6:01
pay any taxes, any make any estimated
6:03
payments to the IRS at that time. Well,
6:05
when tax time rolls around next spring
6:07
in April,
6:09
in addition to the taxes you owe, the
6:11
IRS may hit you with a penalty. and that
6:14
those can be pretty steep, especially
6:17
depending on the amount of money you're
6:18
talking about. And so that can just pile
6:21
onto the taxes you owe. So again,
6:22
something else to to keep in mind in all
6:24
of this. Once again, it's very important
6:27
to uh plan all this carefully, working
6:30
with your financial advisor and tax
6:32
advisor
6:33
uh to make sure that you understand any
6:35
tax ramifications and also if this would
6:38
be beneficial for your situation.
6:40
Five-year rules. There are two five-year
6:43
rules that apply to Roth conversions and
6:46
I'll just cover them quickly here based
6:48
on what the TSP has said about them. The
6:51
first rule, Roth earnings are not taxed
6:53
if the distribution is considered
6:55
qualified. For Roth earnings to be
6:58
qualified and therefore tax-free, they
7:00
must meet both of these IRS
7:02
requirements. Number one, five years
7:05
have passed since January 1st of the
7:07
calendar year in which you made your
7:09
first Roth contribution or your first
7:13
Roth inplan conversion if your first
7:15
conversion creates your Roth TSP
7:17
balance. And uh number two, you have
7:20
reached age 59 and a half, have a
7:22
permanent disability or are deceased.
7:26
And then the second rule,
7:28
each Roth inplan conversion initiates a
7:31
five-year clock that commences on
7:33
January 1st of the year of each Roth
7:36
conversion. If you withdraw money that
7:39
includes converted funds within 5 years
7:41
of conversion, you must pay a 10% early
7:44
withdrawal penalty tax to the IRS unless
7:47
an exception applies, such as being age
7:49
59 and a half or older.
7:52
I've written an article on fedsmith.com
7:54
that covers these five-year rules that
7:56
the TSP notes in a little bit more
7:58
detail as well as all of this. I know
8:00
this is a complex topic and my intent in
8:03
making this video is not to put you off
8:05
to the notion of doing Roth in plan
8:07
conversions in the TSP. It can be an
8:10
excellent way to reduce taxes and boost
8:13
your long-term savings for retirement,
8:15
but it does require careful planning.
8:17
And that's why I mentioned you need to
8:18
consult with at a minimum tax advisors
8:21
and financial planners for your for your
8:23
situation to make sure you understand
8:25
it, to understand how it would apply to
8:28
your situation, if it makes sense, and
8:30
also to develop a strategy for paying
8:33
the taxes. But it is uh exciting news. I
8:36
know a lot of people have wanted this
8:38
feature in the TSP for a long time. It
8:40
will be here soon. And let me know in
8:42
the comments if you plan to use the Roth
8:44
in plan conversions feature once it
8:46
arrives in the TSP. I'd be curious to
8:48
know what your opinion of it is. Thank
8:50
you for watching. Have a good day.
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