Roth In-Plan Conversions Coming in Jan 2026 — What It Means for You

For years, federal employees who wanted to shift Traditional TSP balances into Roth dollars had only one option: roll their money out to an IRA and convert there.

But starting in January 2026, that changes.

The TSP will finally allow in-plan Roth conversions — keeping your money inside the plan while still giving you the option to pay taxes now for the promise of tax-free income later.

This is more than a new menu option. It’s a chance to rethink your lifetime tax strategy.

How the Conversion Works

When you convert money from Traditional to Roth inside the TSP, you’re essentially telling the IRS: “Tax me now, so I can enjoy tax-free withdrawals down the road.”

The amount you convert is added to your taxable income for that year.

So, if you earn $90,000 from your job and convert $30,000 from your TSP, the IRS will treat you as if you earned $120,000.

The money stays inside your TSP account, but it changes “sides” — moving into the Roth bucket, where growth and withdrawals can be tax-free in retirement (as long as you meet the five-year and age 59½ rules).

That sounds simple, but the tax bill can be steep.

Which means the real question isn’t can you convert, but should you convert?

Who Stands to Benefit

Not every federal employee or retiree will find Roth conversions attractive.

The opportunity tends to shine in certain windows of time:

• Early retirees in a tax lull. If you retire before claiming Social Security and before RMDs begin, your taxable income may drop dramatically. Those “low-income years” are often perfect for partial conversions at lower brackets.

• Mid-career savers with unusually low income. A sabbatical year, deployment, or career change can leave you temporarily in a lower bracket. Using that dip to convert could lock in long-term tax savings.

• Those with heirs in mind. Roth balances can be a gift to the next generation. They’re passed down income-tax-free, which makes conversions appealing if estate planning is a priority.

On the flip side, if you’re already in a high bracket — say, near the top of 24% or 32% — converting may push you into a much higher tax bill today, erasing the benefit.

How to Prepare for 2026

Instead of waiting for the conversion switch to flip, now is the time to plan.

Here are three steps you can take this fall:

1. Map out your brackets. Pull your recent tax return and project where you’ll be in 2026. Knowing how much room you have before hitting the next tax bracket is the foundation of a smart conversion plan.

2. Think ahead to RMDs. Every dollar you convert reduces the size of your future required distributions from Traditional TSP. That can help control taxable income in your 70s and reduce Medicare premium surcharges.

3. Plan for the tax bill. Conversion taxes can’t be withheld directly from your TSP. You’ll need outside savings to cover the cost — otherwise you’re just draining your retirement account to pay the IRS.

What’s Still Unclear

The TSP has said conversions will be available in January 2026, but details remain fuzzy.

We’ll be watching for guidance on:

• Whether you can convert specific dollar amounts or just percentages.

• How quickly converted funds count toward the five-year Roth clock.

• Whether conversions will interact with the new age-60–63 “super catch-up” contributions.

The rules will matter — and they could open doors for strategies like annual “tax bracket filling” or converting just enough to stay under a Medicare surcharge threshold.

Best,
—FWR