TSP Announces Start of Roth TSP In-Plan Conversions

The Thrift Savings Plan (TSP) announced that starting January 28, 2026, TSP participants will be able to convert portions of their traditional (before-taxed) TSP balance to the Roth (after-taxed) TSP balance, called a Roth in-plan conversion. For those federal employees who currently do not have a Roth TSP balance in their TSP account, their first Roth in-plan conversion will create a Roth TSP account.

This column discusses the new Roth TSP in-plan conversion options. Many federal employees and retirees have been waiting for this opportunity to convert portions of their traditional TSP to the Roth TSP. Until now, the only way traditional TSP participants could convert their traditional TSP to a Roth account(namely, a Roth IRA) is to transfer portions of their traditional TSP to a traditional IRA and then convert the traditional IRA to a Roth IRA. This rollover involves more time and usually at more cost.

Before converting portions of their traditional TSP to the Roth TSP via a Roth TSP in-plan conversion, there are five questions traditional TSP participants should ask themselves, particularly with respect to the immediate effects on federal and state income taxes they would owe:

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 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 traditional TSP amount converted to the Roth TSP?
3. Will the conversion result in the increase of the traditional TSP participant’s marginal tax bracket (https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill) in the year of conversion?
4. Will the Roth TSP in-plan result in future-year AGI decreases thereby decreasing future year Medicare Part B (Medical Insurance) and Medicare Part D (Prescription Drug Coverage) premiums?
5. Does the traditional TSP have a sufficient amount of “liquid assts” (for example, passbook savings or a money market account) to immediately pay the federal and state income tax due on the conversion?

Similar to traditional IRA conversions to Roth IRAs, traditional TSP conversions to Roth TSP can be complex. Also, like traditional IRA conversions to Roth IRAs, traditional TSP conversions to Roth TSP are not appropriate for every traditional TSP participant. Traditional TSP conversions to Roth TSP cannot be reversed or changed. This means any traditional TSP participant considering an in-plan Roth TSP conversion should check with their tax and financial  advisor to make sure that a conversion is affordable and appropriate.

Federal and state income tax consequences associated with a Roth TSP in-plan conversion

Traditional TSP participants should be aware of the immediate tax consequences of converting traditional TSP funds to Roth TSP. The amount of the traditional funds converted are added to the traditional TSP participant’s taxable income for the year in which the conversion is performed. This means that the traditional TSP participant must pay income tax on the conversion amount at the traditional TSP participant’s marginal income tax bracket. If the participant lives in a state that has an income tax, then the participant will have to pay state income tax on the amount of traditional TSP converted to Roth TSP.

The traditional TSP amounts converted become taxable at the time of conversion. Since the TSP will not withhold any federal or state income taxes, the traditional TSP participant will most likely have to make federal and state estimated tax payments. These estimated tax payments are due by the 15^th day following the end of the last month of the quarter in which the Roth TSP in-plan conversions were performed. The following table summarizes the beginning and ending dates of the four IRS calendar year quarters and quarterly estimated payment due dates:

The following example illustrates:Example 1.  Jessica is single and in a 22 percent, federal marginal tax bracket and a seven percent state marginal tax bracket. On February 10, 2026, Jessica converts $30,000 of her traditional TSP to the Roth TSP via a Roth TSP in-plan conversion. Jessica’s federal income tax liability resulting from the $30,000 traditional TSP conversion to Roth TSP is 22 percent of $30,000, or $6,600. Her state income tax liability resulting from the $30,000 Roth TSP In-plan conversion is seven percent of $30,000, or $2,100.

Since Jessica performed her $30,000 traditional TSP conversion during the first quarter of 2026, she must make federal and state estimated tax payments of $6,600 and $2,100 respectively that are due April 15, 2026. She cannot wait until Spring 2027 when she files her 2026 federal and state income tax returns to pay the $6,600 and $2,100 tax liabilities. If she does not make the estimated tax payments due April 15,2026 and waits until Spring 2027 to pay the taxes due, then she will likely be subject to a federal and state underwithholding penalty.

On August 15, 2026, Jessica decides to perform another Roth TSP in-plan conversion of $30,000. Jessica owes at least $6,600 in federal income tax and $2,100 in state income tax, resulting from the conversion. “At least” $6,600 and $2,100 are owed, with a possibility that the tax liabilities may be larger. As a result of Jessica performing these Roth TSP in-plan conversions, the additional income could result in Jessica being moved into a higher federal and/or state marginal tax bracket.

For the August 15,2026 Roth TSP in-plan conversions, Jessica must make estimated tax payments (federal and state) that are due by September 15, 2026. For help with how much and when a traditional TSP participant needs to pay taxes on a Roth TSP in-plan conversion, traditional TSP participants are advised to consult with a tax professional. The TSP cannot and does not provide federal and state tax advice, nor does the TSP answer questions related to how to make federal and state estimated tax payments.

What are the eligibility requirements for performing Roth TSP in-plan conversions?

A federal employee who is a TSP participant 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 the following: (1) CSRS or FERS employee contributions made via payroll deduction and all accrued tax-deferred earnings; (2) For FERS employees, all agency matching contributions and accrued earnings; (3) For FERS employees who have at least three years of federal service, agency automatic one percent of employee annual adjusted basic pay (as shown in Box 12c of employee’s SF- 50 and accrued earnings); and (4) Any direct rollovers/transfers of traditional IRAs, SEP IRAs, SIMPLE IRAS, company-sponsored traditional 401(k), 403(b) and 457 qualified retirement plans.

Traditional TSP participants who are active participants (including current federal civilian employees and active-duty uniformed service members), separated and retired traditional TSP participants and spouse beneficiary traditional TSP participants can perform a Roth TSP in plan conversion. Note that non-spouse beneficiaries such as adult children, are not eligible to perform Roth TSP in-plan conversions.

TSP participants can find their traditional TSP contribution sources and balances for each source in MyAccount and on their account statements. The following example illustrates: