Starting January 2026, the Thrift Savings Plan began to offer in-plan Roth conversions for the first time. This update brings a tax planning strategy to federal employees that's been available in private-sector 401(k) plans for years.

TSP Roth Conversions Are Here (New in 2026) 

Here's what you need to know about how it works, why it matters, and what to consider before converting. 

WHAT IS A ROTH CONVERSION?

A Roth conversion moves money from your Traditional TSP (pre-tax) to your Roth TSP (after-tax). You pay income taxes on the converted amount in the year you convert, but after that, the money grows tax-free and comes out tax-free in retirement.

Think of it as paying your tax bill now to eliminate it later.

The Mechanics: How TSP Conversions Work

Here is what the process looks like:

• Who can convert: Active federal employees, separated participants (retirees), and spousal beneficiaries
• Minimum conversion: $500 per transaction
• Frequency: You can convert as often as you want, in whatever amounts you choose (above the $500 minimum)
• Tax treatment: Every dollar you convert is added to your taxable income for that year
• The critical difference: The TSP will not withhold taxes when you convert. You'll receive the full converted amount in your Roth TSP, but you must pay the tax bill separately using money from outside your TSP—like a checking or savings account.
• Tax reporting: The TSP will send you Form 1099-R showing how much you converted. That amount gets reported as income on your tax return.

If you don't already have a Roth TSP balance, your first conversion will create one.

WHY ROTH CONVERSIONS MATTER

Roth conversions let you create a pool of tax-free money that you can draw from in retirement, providing flexibility in managing your retirement income.

Beginning in 2024, Roth TSP balances are no longer subject to Required Minimum Distributions (RMDs) during the original owner’s lifetime, aligning the TSP with Roth IRA rules under the SECURE 2.0 Act.

The TAX RATE CONSIDERATION

One reason people consider Roth conversions is the possibility that tax rates could be higher in the future than they are today.

Recent legislation—the One Big Beautiful Bill Act of 2025—extended the individual income tax brackets established under the Tax Cuts and Jobs Act (TCJA) beyond 2025. As a result, current federal tax rates are expected to remain in effect unless Congress enacts new changes.

Additionally, once you have multiple income sources in retirement—pension, Social Security, TSP withdrawals, and Required Minimum Distributions—your total taxable income may be higher than you expect.

THE CASH REQUIREMENT: A CRITICAL PLANNING POINT

Here's where TSP conversions differ significantly from IRA conversions: the TSP will not withhold taxes.

When you convert, the full amount moves into your Roth TSP, but you'll need to pay the resulting tax bill from funds outside your TSP—such as a checking or savings account.

This means two things:

1. You need liquid cash available outside your TSP
2. You need to plan conversions carefully so you don't create a tax bill you can't afford to pay

The tax liability will depend on the amount you convert and your individual tax situation.

WHEN CONVERSIONS MIGHT MAKE SENSE

Different life stages create different opportunities:

While still working: your current income may be at its highest point during your career. Many active employees choose to wait until retirement, when income typically decreases.

Recently retired, before claiming Social Security: This is sometimes considered a strategic window. Your income may drop significantly after retirement and before you begin Social Security, potentially creating favorable conversion opportunities. This window often lasts from retirement until you claim Social Security.

Between retirement and Required Minimum Distributions: Before age 73 (or 75 for those born in 1960 or later), you control exactly how much you withdraw from your TSP. After 73 (or 75), the government requires minimum withdrawals whether you need the money or not. Converting before RMDs begin may reduce those future mandatory withdrawals.

Already receiving Social Security and a pension: You may have less flexibility to convert without increasing your income significantly. But smaller strategic conversions might still make sense, especially if you're trying to reduce future RMDs or leave tax-free money to heirs.

WHAT MIGHT GO WRONG: POTENTIAL OBSTACLES TO RECOGNIZE

• Income spikes: Converting too much at once can significantly increase your taxable income for that year, potentially creating unintended consequences.
• Medicare premium surcharges (IRMAA): Higher income can trigger increased Medicare Part B and Part D premiums based on income from two years prior. These surcharges can sometimes add hundreds to thousands of dollars per person per year.
• Social Security taxation: Additional income from conversions can affect how much of your Social Security benefits are subject to taxation.
• State taxes: Tax treatment of conversions varies significantly by state. Understanding your state's approach is important before converting.
• Insufficient cash: Converting without having funds available to pay the resulting tax bill creates serious financial problems.

HOW TO THINK ABOUT TIMING

The best conversion strategy is rarely "all at once". Instead, some people may:

• Convert gradually – Spread conversions over multiple years rather than converting large amounts in a single year
• Target lower-income years – Focus conversions in years when your income is temporarily lower
• Stay aware of thresholds – Be mindful of income levels that trigger Medicare surcharges or other consequences
• Coordinate with Social Security – Plan conversions around when you claim Social Security, since that represents a significant change in your income
  

PREPARING FOR ROTH CONVERSIONS

The TSP has released final procedures, forms, and a conversion calculator. You can find additional resources here.

Things to consider as you review the TSP information include:

• Assess your current situation: What does your income look like now? What will it look like in retirement? When will you claim Social Security?
• Build cash reserves: If you're considering conversions, start setting aside funds that will be available to pay the resulting tax liability.
• Map your timeline: Understand your income trajectory from now through your retirement years. Where are the periods of lower income? Those may present conversion opportunities.
• Understand the impacts: Be aware of how additional income from conversions might affect other aspects of your financial situation, including Medicare premiums.

THE BOTTOM LINE

TSP Roth conversions are a significant planning tool, but they're not appropriate for everyone. Success depends entirely on your individual situation, income timeline, and financial goals.

The opportunity is real: pay taxes at current rates to create tax-free income for the rest of your life. But the execution matters. Converting the wrong amount at the wrong time can create problems rather than solving them.

Not sure if TSP conversions are the right choice for you? Reach out to an EP Wealth advisor to discuss your financial situation and get personalized guidance.

DISCLOSURES

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