Starting on January 28, 2026, the Thrift Savings Plan (TSP) will allow TSP participants to convert portions of their traditional (before-taxed) TSP account to their Roth (after-taxed) TSP account. This new TSP investment opportunity is called a “Roth in-plan conversion.” Those TSP participants who currently do not have a Roth TSP balance in their TSP account will have their first Roth TSP account when they perform their first Roth in-plan conversion.
This option to convert portions of a traditional TSP account to a Roth TSP account may benefit some but not all traditional TSP participants. Any traditional TSP participant considering an in-plan conversion is advised to consult with a qualified tax advisor before performing a Roth in-plan conversion. This column previews some of the tax and financial issues associated with Roth in-plan conversions.
READ: Roth TSP in-Plan Conversion Option Starts January 2026
Questions to consider before performing a Roth in-plan conversion
There are five questions that a traditional TSP participant should consider before performing a Roth in-plan conversion. These questions are:
1. How will the conversion affect the traditional TSP participant’s adjusted gross income (AGI) in the year of conversion to the extent of possible current year loss of tax credits and tax deductions?
2. How much federal and state income tax will the traditional TSP participant have to pay on the amount of the traditional TSP account converted?
3. Will the conversion result in an increase on the TSP participant’s marginal tax bracket in the year of the conversion?
4. Will Roth TSP in-plan conversions through the years significantly decrease future AGI income and affect future Medicare Part B and Medicare Part D premiums?
5. Does the traditional TSP participant have a sufficient amount of “liquid cash;” for example, a money market account or a passbook savings account, available to pay the federal and state income tax due on the conversion?
Like traditional IRA conversions to Roth IRA, Roth in-plan conversions are complex. And just like a traditional IRA conversion to a Roth IRA, Roth in-plan conversions are not appropriate for every traditional TSP participant. For that reason, TSP participants should consult with their tax advisors to plan their conversion strategy. Finally, like traditional IRA conversions to Roth IRAs, a Roth TSP in-plan conversion cannot be reversed or changed.
READ: 5 Mistakes for Traditional IRA to Roth IRA Conversions
Paying Taxes on a Roth in-plan conversion
Upon converting traditional TSP (before-taxed funds, the amount of the traditional TSP funds converted are added to the TSP participant’s taxable income for the year in which the conversion was performed. Conversions are taxed as ordinary income. This means that the TSP participant must pay income tax on the conversion amount at the traditional TSP participant’s marginal income tax bracket. Since the conversion adds to the traditional TSPs total income, the conversion could push the traditional TSP participant into a higher marginal tax bracket.
The amount of traditional TSP that is converted to the Roth TSP is taxable at the time of the conversion. Since there is no withholding on Roth in-plan conversions, the traditional TSP participant will likely have to make federal and state estimated tax payments due at the end of the quarter in which the in-plan conversion was performed. The following example illustrates:
Example 1. Elizabeth is single and in a 24 percent federal marginal tax bracket and an eight percent state marginal tax bracket. On February 3, 2026, Elizabeth converts $10,000 of her traditional TSP to the Roth TSP via a Roth TSP in-plan conversion. Elizabeth’s federal tax liability resulting from the $10,000 Roth TSP conversion is equal to 24 percent of $10,000, or $2,400. Her state tax liability resulting from the $10,000 Roth TSP conversion is equal to eight percent of $10,000, or $800. Since Elizabeth performed her Roth in-plan conversion during the first quarter of 2026 (January 1, 2026 – March 31, 2026), Elizabeth must make a federal income tax estimated tax payment of $2,400 due April 15, 2026. She must also make an $800 state estimated tax payment, also due on April 15, 2026.
For help with how much and when a traditional TSP participant needs to pay taxes on a conversion, the TSP participant should consult a tax professional in order to avoid any federal and state underpayment penalties. The TSP cannot and does not provide federal and state tax advice nor dues the TSP answer questions about how to make federal and state estimated tax payments.
Eligibility for Roth in-plan conversions
A federal employee is eligible to perform a Roth TSP in-plan conversion if the participant has a vested traditional TSP account balance. Included in an employee’s vested traditional TSP account balance are: (1) Employee contributions made via payroll deduction; (2) Accrued tax-deferred earnings in the traditional TSP account; (3) For FERS employees, all agency matching contributions and accrued earnings; and (4) For FERS employees who have at least 3 years of FERS service, agency automatic 1 percent of employee annual gross pay plus accrued earnings. Also, the participant must also be able to meet the minimum amounts explained below.
Who can perform a Roth TSP in-plan conversion?
Roth TSP in-plan conversions are available to the following traditional TSP participants: (1) Active participants – current federal civilian employees and uniformed services members: (2) Separated and retied participants; and (3) Spouse beneficiary participants. Note that non-spousal beneficiary participants are not eligible to perform Roth TSP in-plan conversions.
Parts of the traditional TSP that can be converted to the Roth TSP
A traditional TSP participant can convert contributions and earnings from the traditional TSP. When the participant chooses a dollar amount to be converted, the money will be taken proportionally from the participant’s eligible sources:
· The participant’s own traditional TSP payroll contributions
· Agency matching contributions (if applicable).
· Agency automatic (one percent) contributions (if applicable), and
· Traditional rollover contributions the participant has made from traditional qualified retirement accounts (like traditional 401k and traditional 403(b) plans the employee previously participated in) and traditional IRAs, including SEP IRAS and SIMPLE IRAS.
Participants can find their traditional TSP contribution sources and balances for each account in MyAccount and on their account statements. The following example illustrates:
Example 2. Caroline, age 46, is a FERS employee with a traditional TSP account and a Roth TSP account. She wants to convert $20,000 of her traditional TSP account (current balance $575,000). The traditional TSP account consists of $382,575 of her contributions (and accrued earnings) made via payroll deductions, $15,303 of agency matching contributions (and accrued earnings), $3,826 of agency automatic (one percent) contributions (and accrued earnings), and $173,296 of a traditional IRA that Caroline directly rolled over to her traditional TSP account. The following table presents a breakdown of the $20,000 traditional TSP being converted to the Roth TSP:
Minimum conversion amount
The minimum amount for each Roth in-plan conversion is $500. A traditional TSP participant can make up to 26 Roth in-plan conversions per calendar year. This limit applies to each account, separately. For example, if a TSP participant who has both a civilian TSP account and a uniformed services TSP account, then the participant can make up to 26 conversions in each account.
Note that spousal consent is not required for married traditional TSP participants to complete a Roth TSP in-plan conversion.
“Leave-behind” traditional TSP amount
For traditional TSP contribution sources that include an employee’s own payroll contributions and agency contributions, there must be a minimum of $500 left on each source after a Roth in-plan conversion. If one of the sources in a traditional TSP participant’s balance has $500 or less, then the conversion amount will be taken only from the other sources in the traditional TSP participant’s account. Rollover contributions to a traditional TSP participant’s account do not have a minimum leave-behind amount. Also, spousal beneficiary participant accounts are not subject to a leave-behind amount.
Required minimum distributions (RMDs)
READ: Top Thrift Savings Plan RMD Mistakes to Avoid
A retired traditional TSP participant who has reached his or her required beginning date (age 73) and therefore must take a required minimum distribution (RMD) from his or her traditional TSP account each year, must take the RMD in a year before performing a Roth in-plan conversion that year. A Roth in-plan conversion does not satisfy the traditional TSP RMD by adding the converted amount to the Roth TSP balance in any year.