TSP Roth conversion guide: What federal employees need to know in 2026

Something big changed for federal employees and service members on Jan. 28, 2026: For the first time, you can convert your traditional Thrift Savings Plan (TSP) balance to Roth directly inside the plan, a feature that has never existed before.

For many federal employees, this is a meaningful opportunity. A TSP Roth conversion means paying taxes on your savings now in exchange for tax-free growth and withdrawals later. And because this happens inside the TSP, there’s no need to roll money out of the plan to make it work.

That said, "can" doesn't always mean "should." Converting involves trade-offs: Tax timing, bracket management, five-year rules and retirement income projections. The right move depends on your situation. This guide covers how it works, who qualifies, what the tax impact looks like and how to decide if a conversion is right for your situation.

A TSP Roth conversion (also called a TSP in-plan Roth conversion) is the process of moving money from your traditional, pre-tax TSP balance into your Roth TSP balance within the same plan. You're not moving money out of the TSP. You're changing its tax treatment from "taxed later" to "taxed now, withdrawn tax-free later.”

This is different from a Roth IRA conversion, which involves moving money out of the TSP and into an IRA first. With an in-plan conversion, everything stays inside the TSP.

The core trade-off is that you pay ordinary income taxes on whatever you convert this year. In return, that money and its future growth can be withdrawn tax-free in retirement, as long as you meet the five-year holding requirements. You're essentially betting that your tax rate today is lower than it will be when you retire.

Here’s how it started. The Federal Retirement Thrift Investment Board (FRTIB) published its final rule on Jan. 15, 2026, and in-plan conversions went live Jan. 28, 2026. Federal employees never have had this option before.

The change reflects years of participant demand and brings the TSP closer to the flexibility private-sector 401(k) plans have offered for years. It also aligns with the SECURE 2.0 Act, which expanded Roth options and required minimum distribution rules across retirement accounts.

So if you've been waiting for a simpler way to move traditional TSP money into Roth status without leaving the plan, that option is now here.

Most TSP participants can take advantage of in-plan Roth conversions. You're eligible if you have a vested traditional TSP balance and fall into one of these categories:

• Active federal employees or service members
• Separated participants (former employees who left their TSP intact)
• Spousal beneficiaries of a TSP account

There are no income limits on TSP Roth conversions. Unlike direct Roth IRA contributions, which phase out at higher income levels, anyone with a traditional TSP balance can convert regardless of how much they earn.

One related 2026 change worth knowing: The new mandatory Roth catch-up rule does have an income threshold. If your 2025 Medicare wages exceeded $150,000, your catch-up contributions in 2026 must go to Roth. But that’s a separate rule from in-plan conversions, which remain income-limit-free. More on that later.

Once you've decided to convert, the logistics are pretty simple.

Each conversion must be at least $500. You can request a conversion as a specific dollar amount or as a percentage of your eligible traditional TSP balance. After converting, you must keep at least $500 in each traditional TSP source, so you can't convert every last dollar. The TSP allows up to 26 conversions per calendar year, which gives you plenty of flexibility for a laddering strategy.

You request TSP in-plan Roth conversions through "My Account" on tsp.gov. Log in, navigate to the conversion feature and choose a dollar amount or a percentage. The whole process is online.

If you hold funds in the TSP's mutual fund window, those aren't directly eligible for conversion. You'll need to transfer them back into the core TSP funds first, then request the conversion.

The tax impact is the most important thing to understand, and the most common source of mistakes.

• Converted amounts are taxable income. Whatever you convert gets added to your gross income for that tax year. If you convert $30,000, your taxable income goes up by $30,000, which could push you into a higher bracket depending on your other income.
• Pay taxes from outside the TSP. Do not withhold taxes from your TSP balance to cover the bill. That reduces your retirement savings and, if you're under age 59½, could trigger a 10% early withdrawal penalty on the withheld amount. Plan to pay from personal funds outside the TSP. To put some numbers around it: convert $50,000 in the 22% bracket and you'll owe roughly $11,000 in federal taxes. Make sure you have the cash before you convert.

Converting everything at once can spike your taxable income and push you into a higher bracket unnecessarily. A better approach for many federal employees is smaller, annual conversions, sometimes called a Roth conversion ladder. The idea is to convert just enough each year to fill your current bracket without crossing into the next one.

For example, if your salary puts your taxable income at $85,000 and the top of the 22% bracket is $103,350 (married filing jointly in 2026), you might convert $18,000 this year to use up that space, then repeat the process in future years.

The TSP has a Roth conversion estimator to help you model different amounts before you act.

This is where many people get tripped up, and where the TSP in-plan conversion has a detail that’s easy to overlook. There are two separate five-year rules that apply to Roth TSP balances, and they govern different things.

For your Roth TSP earnings to be withdrawn tax-free, your Roth TSP account must be at least five years old and you must be at least 59½, permanently disabled or diseased. The clock starts Jan. 1 of the year you made your first Roth TSP contribution, not the year you did a conversion.

So, if you started contributing to a Roth TSP in 2020, your earnings became eligible for tax-free withdrawal as of Jan. 1, 2025. A conversion you do today doesn't reset or restart that clock.

This is the one that catches people off guard. For each taxable in-plan conversion you do, a separate five-year holding period applies before you can access that converted principal penalty-free, if you're under age 59½.

For a conversion done in 2026, that money generally can't be withdrawn penalty-free until Jan. 1, 2031.

Here's a concrete example. Say you're 53, you convert $40,000 in 2026, and you plan to retire at 55. You might assume that retiring at 55 gives you penalty-free access to your Roth funds—and for other money in your plan, the Rule of 55 might do just that. But converted principal plays by different rules. You still won't be able to touch that $40,000 penalty-free until 2031, when you're 58. Withdraw it before then and you could face a 10% penalty.

The bottom line: If you'll need the money within five years, think carefully before converting.

A conversion isn't automatically the right move just because it's available. Here's how to think about when it works in your favor, and when it might not.

• You expect higher taxes in retirement. Federal employees often underestimate their retirement tax burden. If you retire with a FERS pension, Social Security and a large traditional TSP balance, all three produce taxable income. That combination can push retirees into higher brackets than they expected. Converting some traditional TSP to Roth now, while you can plan around your salary, can reduce that future tax load.
• You're in a lower-income year. A gap year, early retirement window or move to part-time work is an ideal time to convert. Lower income means lower taxes on the converted amount.
• You want to reduce future RMDs. Traditional TSP balances are subject to required minimum distributions starting at age 73 (or 75, if born in 1960 or later). Roth TSP balances are not. Converting now shrinks the balance that will eventually force taxable withdrawals, giving you more control over your retirement income.
• You're managing Medicare surcharges. Roth TSP withdrawals don't count toward modified adjusted gross income (MAGI), which means strategic conversions now can help keep your MAGI lower in retirement and reduce potential Income-Related Monthly Adjustment Amount (IRMAA) surcharges on Medicare Part B and Part D.

Rather than converting a large lump sum, consider spreading conversions over several years, filling up your current tax bracket each year without crossing into the next one. For example, converting $20,000 to $30,000 annually over 10 years will often result in significantly lower total taxes than converting $250,000 all at once. The math depends on your specific income, deductions and expected future tax rates, but the idea applies broadly.

Conversion isn't the right move for everyone. It may be worth holding off if:

• You're already in a high bracket with no expectation of lower rates in retirement
• You're retiring soon and don't have cash outside the TSP to cover the tax bill
• You need access to the converted funds within five years
• Converting would push your income into IRMAA territory or significantly spike your tax bill this year

Before Jan. 28, 2026, the only way to get traditional TSP money into Roth status was a two-step process: roll the traditional TSP into a traditional IRA, then convert that IRA to a Roth IRA. This was only available to separated employees or those over age 59½.

Now there's a simpler path. Here's how the two options compare:

One situation where the Roth IRA rollover path still may make more sense: If you want broader investment flexibility. The TSP offers a limited menu of core funds. A Roth IRA opened at a brokerage gives you access to a much wider range of investments. If that matters to you, and you’re separated from federal service, a rollover still may be the better fit.

If you're 50 or older, there's a separate 2026 change that affects catch-up contributions.

Starting Jan. 1, 2026, federal employees whose 2025 Medicare wages exceeded $150,000 are required to direct all catch-up contributions to the Roth TSP. This is a SECURE 2.0 requirement and not something you can opt out of if you're above the threshold.

The 2026 catch-up limits are $8,000 for ages 50 to 59 and 64 and older, and $11,250 for ages 60 to 63. Regular contributions, up to $23,500 in 2026, are still your choice between traditional and Roth. Only catch-up contributions are affected.

This rule is separate from in-plan conversions, but it often affects the same group: high-earning federal employees who are actively thinking about their Roth strategy.

TSP in-plan Roth conversions are a genuinely valuable new option for federal employees, but they're not one-size-fits-all. The two most common mistakes are misunderstanding the five-year rules on converted principal and failing to plan for the tax bill ahead of time. Both are avoidable with a little preparation.

Whether a conversion makes sense depends on your income, tax bracket, retirement timeline, pension income and Social Security strategy. A Thrivent financial advisor can help you model different scenarios, understand how a conversion fits into your broader retirement plan and figure out how much, if anything, to convert each year.

Ready to explore your options? Find a Thrivent financial advisor near you.