Feds Can Now Roth-ify Their Retirement Savings Starting Soon
Published Date: 1/15/2026
Rule
Summary
Starting January 28, 2026, federal employees and service members with a Thrift Savings Plan (TSP) can convert their traditional TSP money into Roth TSP funds. This means you’ll pay taxes now but could enjoy tax-free cash when you retire. It’s a fresh way to manage your retirement savings and take control of your tax future!
Analyzed Economic Effects
9 provisions identified: 2 benefits, 5 costs, 2 mixed.
TSP Roth In-Plan Conversions Allowed
Starting January 28, 2026, participants in the Thrift Savings Plan (TSP) may convert traditional (pre-tax and tax-exempt) TSP balances to Roth (after-tax) TSP balances. Converting triggers federal income tax on the converted amount now but may allow tax-free withdrawals in retirement under Roth rules.
Tax-Exempt Balances May Be Converted
The rule authorizes conversions of both tax-exempt balances (for example, contributions from combat zone pay) and pre-tax balances as part of the traditional balance. Conversions must follow IRS pro rata requirements so tax-exempt and pre-tax amounts are included proportionally.
No Withholding — Taxes Must Be Paid From Personal Funds
Under IRS guidance referenced by the rule, no withholding applies to a Roth in-plan conversion of an otherwise nondistributable amount and participants cannot elect withholding for conversion taxes. Participants must pay federal income tax on converted amounts using personal funds from another source, such as a savings account.
Limit on Number of Conversions
A TSP participant or beneficiary participant may request up to 26 Roth in-plan conversions per calendar year. This limit aligns with a biweekly pay schedule and allows multiple conversion requests across the year.
Who Can Request Conversions
A Roth in-plan conversion may be requested by a participant or a beneficiary participant, including active participants, separated participants who keep TSP accounts after leaving service, and surviving spouses with a beneficiary participant account. Non-spouse beneficiaries and alternate payees are not eligible to request conversions.
$500 Conversion Minimum and Balance Rules
The final rule requires a conversion request amount of at least $500 and a vested account balance of at least $500 at the time of request. Participants must also retain at least $500 in each tax-deferred employee contribution, tax-exempt contribution, agency automatic (1%) contribution, and agency matching contribution balance when requesting a conversion.
RMDs Must Be Satisfied Before Conversion
Roth in-plan conversions may be processed in years when a participant is subject to required minimum distributions (RMDs), but the RMD must be satisfied in full before any conversion is processed. This ensures compliance with IRS rules that prohibit conversion of RMD amounts.
Mutual Fund Window Conversion Limitation
Amounts invested in the TSP Mutual Fund Window cannot be converted to Roth unless they are first transferred back into one or more of the TSP core funds. Conversions of Mutual Fund Window holdings therefore require an additional transfer step.
Required Notices and Acknowledgment Before Conversion
The TSP will provide comprehensive communications explaining the tax implications of conversions, and participants must acknowledge receipt and understanding of such communications before completing a Roth in-plan conversion. The TSP will make materials available on the TSP website and through participant outreach.
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