On January 28, 2026, the Thrift Savings Plan quietly launched a feature that 7.3 million federal employees and retirees had been waiting for: in-plan Roth conversions.
For the first time, you can move money from your traditional (pre-tax) TSP directly into your Roth TSP — without rolling it out to an IRA, without leaving the low-cost TSP structure, and without waiting until you are separated from service.
It sounds straightforward. It is not.
Done right, this move can eliminate Required Minimum Distributions, build a tax-free income bucket your heirs can inherit, and give you real flexibility in retirement. Done wrong — too much, too fast, without a plan — it triggers a five-figure tax bill you were not expecting, spikes your Medicare premiums, and may cost you more in the conversion year than you would ever save.
This is the complete playbook. Every rule, every trap, every strategy — with real numbers.
What Changed on January 28, 2026
Before 2026, if you wanted to convert traditional TSP money into Roth money, you had to do it the hard way: roll funds out of your TSP into a traditional IRA, then convert the traditional IRA into a Roth IRA. Multiple accounts, potential fees, more complexity.
Now you can do it inside the TSP itself.
The TSP calls it a "Roth in-plan conversion." The Federal Retirement Thrift Investment Board (FRTIB) implemented it under the SECURE 2.0 Act of 2022, and as of January 28, 2026, it is live for active federal employees (you do not need to be age 59½ or separated), separated participants (retirees who still have money in the TSP), and spousal beneficiaries (spouses who inherited a TSP account). You initiate it through the "My Account" section at tsp.gov.
The Mechanics: How It Actually Works
Minimum per conversion: $500
Maximum conversions per year: 26 per TSP account
Tax withholding: None — TSP does not withhold taxes on conversion
Here is the critical point that trips people up: you must pay the tax bill with outside funds.
If you convert $40,000 from traditional to Roth and you are in the 22% federal tax bracket, you owe roughly $8,800 in federal taxes (plus state taxes if applicable) in the year of conversion. That $8,800 must come from your bank account, not from your TSP. The TSP will send you a Form 1099-R at year-end showing the converted amount as ordinary income.
The conversion is also irreversible. Once moved to Roth, it stays there. There is no undo button.
Additionally, you must leave at least $500 remaining in each of your traditional TSP sub-balances after any conversion: tax-deferred employee contributions, tax-exempt (combat-zone) contributions, agency automatic contributions, and agency matching contributions.
Why This Matters: The Roth TSP Advantage
1. No Required Minimum Distributions (RMDs) on Roth TSP balances. Starting in 2024 under SECURE 2.0, Roth TSP balances are no longer subject to RMDs during the original owner's lifetime. Every dollar you convert to Roth is a dollar that will never generate a forced RMD.
2. Tax-free growth and tax-free withdrawals. Money in your Roth TSP grows tax-free and — assuming you have satisfied the 5-year rule and are age 59½ or older — comes out completely tax-free. For a federal retiree with a pension, FERS supplement, and Social Security, tax-free TSP distributions give you serious control over your taxable income in any given year.
3. Tax-free inheritance. Roth accounts pass to beneficiaries without the tax bill that comes with inherited traditional retirement accounts.
The 5-Year Rule: Do Not Miss This
There are two 5-year rules for Roth TSP.
Rule 1: The Participation Rule. This determines when your Roth TSP earnings can be withdrawn tax-free. The clock starts on January 1 of the year you first make a Roth contribution or conversion — regardless of what day in that year it happened. If you do your first Roth conversion on May 6, 2026, the 5-year clock started January 1, 2026 and satisfies on December 31, 2030.
Rule 2: The Separation Rule. This determines when the principal can be withdrawn without penalty if you separate from service, kicking in at age 55. If you are under age 59½ and within 5 years of your first conversion, be careful — early access could trigger a 10% penalty on earnings.
Who Should Convert: The Tax Valley
Not everyone should convert. The federal employee who benefits most is one sitting in what some advisors call the "Tax Valley" — a period where their taxable income is temporarily lower than it will be in the future.
The Tax Valley typically opens after retirement but before Social Security begins, before RMDs start at age 73, and before IRMAA thresholds get hit ($106,000 single / $212,000 married in 2026).
In this valley, every dollar you convert from traditional to Roth is taxed at today's lower rate. Active employees can also hit mini-valleys when a spouse stops working, you take a year of leave without pay, or high overseas allowances keep taxable income low.
The Conversion Ladder: The Smart Way to Convert
Here is the mistake almost everyone makes: converting too much at once.
A $200,000 lump-sum conversion in one year can push you from the 22% to the 32% bracket, trigger IRMAA Medicare premium surcharges (which hit 2 years later), reduce eligibility for certain deductions, and increase taxes on Social Security.
The solution is the Roth ladder — a strategic series of partial conversions over several years, sized to keep you within a target tax bracket.
Step 1: Know your current year's projected taxable income from all sources. Step 2: Identify how much room you have before hitting the next bracket ceiling — for 2026, the 22% bracket top is $103,350 MFJ and $51,675 single. Step 3: Convert the amount that fills but does not cross that ceiling. Step 4: Repeat annually during your Tax Valley.
Example: A FERS retiree at age 64 with a $58,000 pension and $20,000 in Social Security has about $62,000 in taxable income. She has room for roughly $41,000 in Roth conversions before crossing into the 24% bracket. Converting $41,000 annually for 5 years moves $205,000 to Roth. Tax bill each year at 22% = ~$9,020, paid from savings. After 5 years, she has eliminated RMD exposure on $205,000 and built a tax-free bucket.
The Catch-Up Contribution Rule Change in 2026
Under SECURE 2.0, catch-up contributions for high earners must now go into Roth. If your wages in 2025 exceeded $150,000, all catch-up contributions in 2026 must be made to your Roth TSP (not traditional).
For 2026: Standard limit is $24,500 (up from $23,500), catch-up for age 50+ is $8,000 additional, and super catch-up for ages 60–63 is $11,250 additional.
What Can Go Wrong
Medicare IRMAA surcharges (the two-year lag trap). IRMAA increases your Medicare Part B and D premiums based on your income from 2 years prior. A large conversion in 2026 that pushes your MAGI above the threshold means higher Medicare premiums in 2028. 2026 IRMAA threshold: $106,000 single / $212,000 married.
Social Security taxation threshold. Adding Roth conversion income to your AGI can increase the taxable portion of your Social Security benefit — up to 85% of your benefit becomes taxable above $34,000 single / $44,000 married (combined income).
Spending TSP money to pay the tax bill. If you do not have outside funds to cover the conversion tax and end up withdrawing from your TSP to pay it, you have also given up future tax-free growth on those withdrawn dollars and potentially triggered a 10% early withdrawal penalty. Do not convert more than you can pay for with outside funds.
Military Members: The Combat Zone Advantage
Service members with combat-zone tax-exempt (CZTE) contributions in their traditional TSP have a unique opportunity. Conversions are pro-rata — if 40% of your traditional TSP balance came from tax-exempt CZTE pay, 40% of any conversion is tax-free. That is the triple tax benefit: tax-free income, tax-free growth, tax-free withdrawal. The math here is highly individual and worth a careful calculation before converting.
How to Do It
- Log in at tsp.gov → My Account
- Navigate to Roth in-plan conversion
- Enter either a dollar amount or percentage of eligible traditional balance
- Review the estimated tax impact using the TSP built-in calculator
- Confirm the conversion (it is immediate and irrevocable)
- Set aside the tax amount from outside funds before April 15 of the following year
The TSP recommends consulting a tax advisor before converting. The decision is permanent, the tax impact is immediate, and the long-term variables require personalized modeling.
The RetireStack Take
The TSP Roth conversion is a powerful tool that most federal employees will underuse or misuse.
Underuse: sitting on a $400,000 traditional TSP through a 10-year Tax Valley without doing any conversions, then watching RMDs force $40,000+ of taxable income per year after age 73.
Misuse: converting $300,000 in year one because it "sounds like a good idea," spiking into the 32% bracket, triggering IRMAA surcharges for two years, and paying far more in taxes than any Roth benefit ever recaptures.
The discipline is in the sizing. Know your brackets. Know your IRMAA thresholds. Know your Social Security taxation inflection points. Convert up to those lines, not over them. Repeat annually. That is the playbook.
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