TSP Roth In-Plan Conversion 2026: Complete Guide for Federal Employees
TSP Roth in-plan conversions launch January 28, 2026. Learn eligibility, tax implications, the five-year rule, and how to convert. Free guide for feds.
Starting January 28, 2026, federal employees can convert traditional TSP balances to Roth directly within the Thrift Savings Plan. No more rolling funds to an IRA first. This is the biggest TSP change since the Roth option launched in 2012.
But converting isn't right for everyone. The tax hit can be significant, and once you convert, there's no going back.
Here's everything you need to know about TSP Roth in-plan conversions.
Key Takeaways
- TSP Roth in-plan conversions launch January 28, 2026 in My Account
- Minimum $500 per conversion, maximum 26 conversions per year
- Converted amount is taxable income, TSP does not withhold taxes
- Conversions are irrevocable, you cannot undo them
- Each conversion has its own five-year rule for penalty-free withdrawals
What Is a TSP Roth In-Plan Conversion?
A Roth in-plan conversion moves money from your traditional (pre-tax) TSP balance to your Roth (after-tax) TSP balance. The key word is "in-plan." You're converting within the TSP itself.
Before this feature, converting traditional TSP to Roth required three steps:
- Roll traditional TSP out to a traditional IRA
- Convert traditional IRA to Roth IRA
- Keep track of it outside the TSP system
Now you can do it in one step, directly in My Account.
Why this matters: Roth balances grow tax-free. When you withdraw in retirement, you pay zero federal income tax on qualified distributions. If you expect to be in a higher tax bracket later, or you want tax diversification, Roth makes sense.
Key Rules and Limits
| Rule | Details |
|---|---|
| Launch Date | January 28, 2026 |
| Minimum | $500 per conversion |
| Maximum | 26 conversions per calendar year |
| Holdback | Must maintain $500 in each traditional source |
| Reversible? | No, conversions are irrevocable |
| Tax Withholding | None, pay taxes from external funds |
The $500 Holdback Rule
When you convert, you can't empty your traditional balance completely. TSP requires you to keep at least $500 in each traditional contribution source (employee contributions, agency automatic 1%, agency match).
This prevents accidental full conversions and gives you flexibility for future conversions.
26 Conversions Per Year
You can convert up to 26 times per calendar year, per account (civilian and uniformed services accounts count separately). This allows for "conversion laddering," spreading conversions across multiple years to manage your tax bracket.
Who Should Consider Converting?
Converting makes sense in these situations:
Good candidates:
- You're in a lower tax bracket now than you expect in retirement
- You have a long time horizon (10+ years until withdrawal)
- You want tax diversification between traditional and Roth
- You can pay the tax bill from outside funds (not from the TSP itself)
- You want to reduce future RMDs (Roth TSP is exempt from required minimum distributions)
Think twice if:
- You're in your highest earning years (peak tax bracket)
- You're within 5 years of needing the money
- You'd have to sell TSP investments at a loss to pay taxes
- The conversion would push you into a higher Medicare premium bracket (IRMAA)
- You're already over age 73 and subject to RMDs (must take RMD before converting)
Tax Implications: What You'll Owe
This is where people get surprised. The converted amount is added to your taxable income for the year.
Example: You convert $50,000 from traditional to Roth.
| Your Tax Bracket | Federal Tax Owed |
|---|---|
| 12% | $6,000 |
| 22% | $11,000 |
| 24% | $12,000 |
| 32% | $16,000 |
Important: TSP does not withhold taxes on conversions. You must pay from external funds. If you convert in Q1, you may need to make estimated tax payments to avoid underpayment penalties.
State Taxes Too
Don't forget state income tax. If you live in a state with income tax, the conversion is taxable there as well. A $50,000 conversion in California (9.3% bracket) adds another $4,650 to your tax bill.
Watch for IRMAA
Medicare premiums are income-based. If a large conversion pushes your modified adjusted gross income over $106,000 (single) or $212,000 (married), you'll pay higher Medicare Part B and D premiums for up to two years.
The Five-Year Rule Explained
There are actually two five-year rules for Roth accounts. Both apply to TSP Roth conversions.
Rule 1: Tax-Free Earnings
To withdraw earnings tax-free, your Roth TSP must be open for at least five years. The clock starts January 1 of the year you first contributed to Roth TSP (or January 1 of your first conversion year, whichever is earlier).
If you've been making Roth TSP contributions since 2020, this clock is already satisfied.
Rule 2: Penalty-Free Converted Amounts
Each conversion has its own five-year clock for penalty-free withdrawals of the converted amount (not earnings).
Example:
- You convert $30,000 in January 2026
- The five-year clock for that $30,000 starts January 1, 2026
- You can withdraw that $30,000 penalty-free after January 1, 2031
If you withdraw the converted amount before five years (and before age 59 1/2), you'll owe a 10% early withdrawal penalty on the amount.
Important: This rule tracks each conversion separately. A conversion in 2027 has its own five-year clock starting January 1, 2027.
Step-by-Step: How to Convert in My Account
Starting January 28, 2026, conversions will be available in My Account on TSP.gov:
- Log in to My Account at tsp.gov
- Navigate to "Roth Conversions" (new section)
- Select the contribution sources to convert from
- Enter the dollar amount (minimum $500)
- Review the tax disclosure (no withholding reminder)
- Confirm the conversion
TSP processes conversions within 1-2 business days. You'll see the funds move from traditional to Roth in your account.
Note: TSP is also launching a Roth Conversion Estimator tool in Q1 2026. This calculator will help you model the tax impact before you convert.
Conversion Strategies by Life Stage
Early Career (Under 40)
Strategy: Convert aggressively while in lower tax brackets.
You have 20+ years for tax-free growth. Even a $10,000 conversion at age 30 could be worth $40,000+ by retirement. The tax cost now is small compared to the benefit later.
Action: Max out Roth contributions ($24,500 in 2026), then consider converting additional traditional balances each year.
Mid-Career (40-55)
Strategy: Balance growth with tax management.
You're likely in higher earning years. Large conversions may not make sense. Instead, consider converting just enough to "fill up" your current tax bracket without jumping to the next one.
Action: Calculate how much room you have in your current bracket. Convert that amount each year.
Near Retirement (55+)
Strategy: Focus on tax diversification and RMD planning.
If you have mostly traditional TSP, converting some to Roth gives you flexibility. You can draw from Roth in years when you need to manage taxable income.
Action: Model your retirement income. Convert enough to reduce future RMDs without spiking current taxes.
Already Retired
Strategy: Convert in low-income years.
If you retire before Social Security or pension kicks in, those "gap years" may be perfect for conversions. Your taxable income is lower, so conversions cost less.
Action: Work with a tax professional to identify optimal conversion years.
Common Mistakes to Avoid
1. Converting too much at once
A $200,000 conversion sounds efficient, but it could push you into the 32% or 35% bracket. Spread conversions over multiple years to stay in lower brackets.
2. Paying taxes from the TSP itself
If you're under 59 1/2 and withdraw TSP funds to pay the tax bill, you'll owe the 10% early withdrawal penalty on that amount. Always pay conversion taxes from external funds.
3. Forgetting state taxes
Your federal tax bracket isn't the whole picture. Add state income tax to your conversion cost calculation.
4. Converting when you need the money soon
Each conversion has a five-year clock. If you might need those funds within five years, conversion may not make sense.
5. Not taking RMD first
If you're over 73 and subject to required minimum distributions, you must take your annual RMD before doing any conversions. You cannot convert your RMD amount.
6. Ignoring Medicare IRMAA
A large conversion can trigger higher Medicare premiums for two years. Factor this into your cost analysis.
Model Your TSP Growth
Thinking about converting? Use our free TSP Calculator to model how Roth conversions affect your long-term retirement balance.
Compare scenarios: traditional contributions only vs. a mix of traditional and Roth. See how tax-free growth impacts your retirement income.
Frequently Asked Questions
What is a TSP Roth in-plan conversion?
It's a new feature starting January 28, 2026 that lets you convert money from your traditional (pre-tax) TSP balance to your Roth (after-tax) TSP balance directly within the plan. No IRA rollover required.
Who is eligible for TSP Roth in-plan conversions?
Active federal employees, uniformed services members, separated/retired participants, and spousal beneficiaries with at least $500 vested traditional balance. Non-spouse beneficiaries are not eligible.
How much can I convert from traditional TSP to Roth?
Minimum $500 per conversion, with up to 26 conversions per year per account. You must maintain a $500 "holdback" in each traditional contribution source.
What are the tax implications of a TSP Roth conversion?
The converted amount becomes taxable income for that year. TSP does not withhold taxes, so you must pay from external funds. You may need to make quarterly estimated tax payments.
Can I undo a TSP Roth conversion?
No. Once processed, Roth in-plan conversions are irrevocable and cannot be reversed.
What is the five-year rule for TSP Roth conversions?
Two rules apply: (1) For tax-free earnings, 5 years from your first Roth contribution; (2) For penalty-free withdrawal of converted amounts, each conversion starts its own 5-year clock from January 1 of the conversion year.
What if I have mutual fund window investments?
You cannot directly convert mutual fund window money. First sell shares and transfer funds back to TSP core funds, then request a Roth in-plan conversion.
Related Resources
- TSP Guide 2026: Complete guide to the Thrift Savings Plan
- TSP Calculator: Model your TSP growth and withdrawal strategy
- FERS Retirement Calculator: Estimate your federal pension
- TSP 2025 Performance Review: How TSP funds performed last year
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