TSP Roth Conversion 2026: In-Plan Conversion Rules and Tax Implications

What Changed: In-Plan Roth Conversions Are Live

Starting in late January 2026, the TSP opened in-plan Roth conversions to both active federal employees and separated retirees. Before this, converting traditional TSP money to Roth required rolling the balance out to an external Roth IRA — a one-way trip that meant giving up the TSP's rock-bottom expense ratio (about 0.049% annually).

Now you can convert traditional pre-tax TSP balances to Roth post-tax balances without moving a dollar out of the plan. The conversion happens inside your existing TSP account. Your total balance stays the same; only the tax character of the converted portion changes from traditional to Roth.

How the Tax Hit Works

The converted amount is treated as ordinary taxable income in the calendar year you convert. If you convert $50,000 of traditional TSP money to Roth in 2026, that $50,000 is added to your 2026 adjusted gross income.

No tax is withheld at the time of conversion — the money doesn't leave your account, so the TSP has nothing to withhold from. You'll need to settle the tax bill using personal funds from outside the TSP. For most people, that means adjusting quarterly estimated tax payments or increasing withholding from other income sources (your FERS annuity, Social Security, or wages if you're still working).

Converting $50,000 in the 22% bracket creates roughly an $11,000 federal tax bill. Converting $200,000 could push you into the 32% or 35% bracket, depending on your other income. The marginal-rate math matters.

The Proportional Conversion Rule

You can't cherry-pick which dollars to convert. Under IRS rules, conversions must draw proportionally from both the taxable and non-taxable portions of your traditional balance.

Here's what that means in practice. If your traditional TSP contains $300,000 — of which $270,000 is pre-tax contributions and earnings (taxable) and $30,000 is tax-exempt combat zone contributions (non-taxable) — then 90% of any conversion is taxable and 10% is non-taxable. Convert $100,000, and $90,000 hits your income as taxable while $10,000 is a non-taxable conversion.

Most federal employees have little or no tax-exempt money in their TSP, so the proportional rule is a non-issue. It mainly affects uniformed service members who made contributions from combat zone tax-exempt pay.

Who Benefits Most From Converting

Roth conversions make the most financial sense when your current tax rate is lower than what you expect to pay in the future. Three groups of federal retirees tend to fit this profile:

Early retirees before Social Security kicks in. If you retired at your MRA and are living on your FERS annuity plus the Special Retirement Supplement, your taxable income is likely lower than it will be once you start collecting Social Security at 62 (or later). Converting during this low-income window locks in a lower tax rate.

Retirees managing future RMDs. Traditional TSP balances are subject to required minimum distributions starting at age 73 (born before 1960) or 75 (born 1960 or later). Large traditional balances generate large RMDs, which can push you into higher tax brackets and trigger Medicare IRMAA surcharges. Converting a portion to Roth now shrinks the traditional balance that drives those future RMDs. Roth TSP balances are completely exempt from lifetime RMDs under SECURE 2.0.

Retirees concerned about future tax rates. Current federal income tax rates under the Tax Cuts and Jobs Act are scheduled to sunset after 2025 — though Congress may extend them. If rates rise, money you convert now at 2026 rates avoids the higher rates later.

IRMAA: The Hidden Cost of Large Conversions

Medicare Part B and Part D premiums are based on your Modified Adjusted Gross Income (MAGI) from two years prior. A large Roth conversion in 2026 increases your 2026 MAGI, which could trigger Income-Related Monthly Adjustment Amount (IRMAA) surcharges on your 2028 Medicare premiums.

The standard Part B premium is $202.90 per month in 2026. IRMAA surcharges can add $97 to $395+ per month depending on income level. For married couples filing jointly, the first IRMAA threshold kicks in at $206,000 of MAGI.

This doesn't mean you shouldn't convert — it means you should size conversions to stay below IRMAA thresholds, or at least know the cost you're accepting.

The 5-Year Rule for Roth TSP

Converted amounts follow a 5-year holding period before the earnings portion qualifies for completely tax-free withdrawal. However, this rule is less restrictive than it sounds inside the TSP context. The 5-year clock for your Roth TSP started when you made your first-ever Roth contribution to the TSP — not when you did the conversion. If you've been making Roth TSP contributions since 2021 or earlier, the 5-year requirement is already satisfied.

If you've never made a Roth TSP contribution before, the conversion itself starts the 5-year clock. You can still withdraw the converted principal (the amount you converted) at any time without penalty or additional taxes — you already paid taxes on it during the conversion. Only the earnings on top of that principal need the 5-year period (and age 59½) to come out completely tax-free.

Step-by-Step: Running the Conversion

1. Log in to My Account on TSP.gov.
2. Navigate to the in-plan Roth conversion tool (under account management, not withdrawals).
3. Enter the dollar amount you want to convert.
4. Review the proportional tax breakdown the system calculates.
5. Confirm the conversion. The re-characterization happens internally — no checks, no waiting periods.
6. Adjust your estimated tax payments or annuity withholding to cover the additional income tax.

There are no conversion fees charged by the TSP.

Planning Conversions Alongside Your Drawdown Strategy

The TSP Withdrawal & Drawdown Strategy Guide covers how in-plan Roth conversions fit into the broader post-separation playbook — coordinating conversions with withdrawal timing, RMD obligations, and IRMAA thresholds so each move reinforces rather than undermines the others.

See more United States guides →