The Thrift Savings Plan (TSP) recently released more details about its upcoming in-plan Roth conversion option, launching in January of 2026. NARFE advocated for the new option, which provides additional flexibility for tax planning for federal employees and retirees. Under the new option, investors will soon be able to convert money from their traditional TSP balance to Roth status and if no Roth balance exists, the first conversion will create one.
Under the traditional TSP plan, contributions are pre-tax and are taxable on withdrawal. While Roth contributions are after-tax but generally tax-free on withdrawal, including earnings if certain conditions are met. Additionally, Roth balances also are not subject to required minimum distributions starting at age 73. Converted amounts will be treated as taxable income for the year of conversion, and taxes must be paid from personal funds outside the TSP. If you are considering making the switch, TSP highly suggests reaching out to a tax advisor to fully understand how making this switch would affect your taxable income. This conversion option will be available to active and separated participants and spousal beneficiaries, with a $500 minimum per transaction.
