Starting in January 2026, TSP participants — federal employees, uniformed service members, retirees, and eligible beneficiaries — will be able to convert money from their traditional (pre-tax) TSP balance to a Roth (after-tax) balance right inside their existing TSP account.
If you don’t already have a Roth balance in TSP, the first conversion will create one. From then on you can convert part or all of eligible traditional funds.
What You Need to Know Before You Convert
- Taxes now, tax-free later: When you convert traditional money to Roth, the conversion amount is added to your taxable income for that year — which means you’ll owe income tax at your normal tax rate.
- Pay taxes from outside the TSP: You cannot use the converted amount itself to pay the tax. That means you’ll need cash outside the TSP (like a bank or savings account) to cover the tax bill.
- Flexibility & control: The Roth in-plan conversion is optional — you decide whether to convert, how much, and when. You can do partial conversions, in increments, instead of converting everything at once.
- Long-term benefit: Once converted, the money in your Roth account grows tax-free. Qualified withdrawals (subject to Roth-account rules) will be tax-free in retirement — a big benefit if you expect your tax rate to stay the same or go up in the future.
When a Roth Conversion Might Make Sense
A conversion might be a smart move if:
- You expect higher taxes when you retire than you pay now.
- You can comfortably cover the tax bill upfront without dipping into retirement savings.
- You plan to leave the money invested for many years — giving growth plenty of time before retirement (so withdrawals can be tax-free).
- You want tax diversification — a mix of traditional (pre-tax) and Roth (after-tax) money to manage tax risk in retirement.
But It’s Not for Everyone
If you expect your retirement income to be lower than now, or you don’t have extra savings to pay the tax bill, a conversion might not be worth it. Large conversions in a single year might push you into a higher tax bracket or affect eligibility for tax credits.
Because of these trade-offs, many advisors recommend a gradual, bracket-filling approach: convert only enough each year to stay within your current tax bracket — rather than converting everything at once.
Want Help Deciding? That’s What We Do
The new Roth in-plan conversion option is a powerful tool — but it’s also complex. The “right” move depends on your:
- current income
- tax situation
- retirement horizon
- other retirement accounts (pension, Social Security, etc.)
If you’re thinking about converting part or all of your TSP, reach out to us. We’ll help you model the tax impact, evaluate the long-term benefits, and build a strategy tailored to your unique situation.
Schedule Your Complimentary Retirement Session Today
We’ll help you break it all down, step by step — including your pension estimate, TSP strategy, life insurance, and more.
