Roth TSP In-Plan Conversions: What They Mean for Your Taxes

 

Roth in-plan conversions allow a Thrift Savings Plan (TSP) participant to convert funds from their traditional (before-taxed) TSP balance and increase their Roth (after-taxed) TSP balance. Federal employees and retirees can perform Roth in-plan conversions at any time provided their traditional TSP account balance meets eligibility requirements. This column reviews the rules associated with Roth in-plan conversions. The federal and state income tax consequences associated with Roth in-plan conversions are also discussed.

Eligibility for Roth In-Plan Conversions

A federal employee or retiree is eligible to perform a Roth TSP in-plan conversion if they have a vested traditional TSP balance in their TSP account. To find out about vesting in their TSP accounts, federal employees and retirees are advised to go to tsp.gov/taking-money-from-your-account/#vesting(opens in new tab).

Roth TSP in-plan conversions are available to all of the following TSP participants:

• Active participants, including current federal civilian employees and uniformed service members
• Separated and retired TSP participants
• Spouse beneficiary participants

Note that non-spouse TSP beneficiaries are not eligible for Roth in-plan conversions.

Portions of Traditional TSP That Can Be Converted and the “Leave-Behind” Amount

The minimum amount for each Roth in-plan conversion is $500. A TSP participant can perform up to 26 Roth in-plan conversions per calendar year. Both contributions and earnings in a participant’s traditional TSP balance are eligible for conversion. When a TSP participant chooses a conversion amount, the money will be taken proportionally from the participant’s eligible contribution sources:

• The participant’s traditional payroll contributions and their earnings
• Tax-exempt contributions while serving in a combat zone and their earnings, if the TSP participant has them
• Federal agency/Uniformed Service matching contributions and their earnings
• Federal agency/Uniformed Services automatic (one percent) contributions and their earnings, or
• Traditional rollover contributions the TSP participant has made and their earnings

The following example illustrates:

Example 1. Jean is a federal employee and wants to convert $10,000 of her traditional TSP to the Roth TSP. Jean’s traditional TSP balance of $660,000 consists of the following sources:

Of the $10,000 traditional TSP funds that Jean will convert to a Roth TSP:

• 67% of $10,000 equals $6,700, which will come from Jean’s payroll contributions and earnings traditional TSP account
• 3% of $10,000 equals $300, which will come from Jean’s Agency Automatic (1 percent) contributions and their earnings traditional TSP account, and
• 30% of $10,000 equals $3,000, which will come from Jean’s Agency Matching contributions and their earnings traditional TSP account

“Leave-Behind” Amount

When a TSP participant performs a Roth in-plan conversion, a small balance must remain in certain parts of their traditional TSP balance. There must be a minimum of $500 left in the following traditional TSP sources after the TSP participant performs a Roth in-plan conversion:

• The TSP participant’s traditional payroll contributions and their earnings
• Agency/Service Matching Contributions(opens in new tab) and their earnings, if the TSP participant has them, and
• Agency/Service Automatic (1 percent) Contributions(opens in new tab) and their earnings, if the participant has them and they are vested

If any of these sources has $500 or less, that source is not eligible for conversions. The money that the TSP participant converts will only come from the eligible sources in the TSP participant’s traditional TSP account.

Note that rollover contributions to a traditional TSP account (from a traditional IRA, SEP IRA, SIMPLE IRA and/or a traditional qualified retirement account) do not have a minimum leave-behind amount. The entire amount in the “tax-deferred rollover” source is therefore eligible for conversion to the Roth TSP account.

Additional Information on Roth TSP In-Plan Conversions

Employees and retirees with traditional TSP accounts are advised on the following additional information on Roth TSP in-plan conversions:

• No maximum on the amount of traditional TSP that can be converted to Roth TSP. Other than the “leave-behind rule” (see above), there is no maximum limit on how much of a traditional TSP account can be converted to a Roth TSP account. However, traditional TSP participants should be aware that the size of a conversion adds to the participant’s taxable income in the year of conversion.
• Up to 26 Roth TSP in-plan conversions per calendar year. If an employee or retiree has more than one traditional TSP account, the 26-conversion limit per year applies to each account separately. Therefore, if an employee or a retiree has a civilian TSP account and a Uniformed Services TSP account, then the employee or retiree can perform up to 26 conversions in each account per year. Each Roth TSP in-plan conversion is a separate transaction. No automatic or recurring conversions are allowed.
• Spousal consent is not required. Spousal consent is not required in order for a married FERS employee or retiree to complete a Roth TSP in-plan conversion.
• Required minimum distribution (RMD) must be taken before performing a Roth TSP in-plan conversion. A retired TSP participant who has reached their required beginning date (currently, age 73) must withdraw and receive the required minimum distribution (RMD) before the participant can perform a Roth TSP in-plan conversion in any year. The IRS does not allow conversions of RMD amounts. In other words, an annual TSP RMD amount cannot be satisfied by converting traditional TSP to Roth TSP.
• Mutual fund window not eligible. A traditional TSP participant can only convert money invested in TSP funds. This means a participant cannot directly convert money the participant has invested in the TSP mutual fund window. If a TSP participant wants to perform a Roth TSP in-plan conversion with money invested in the TSP mutual fund window, then the TSP participant will need to first sell shares in the mutual fund window and request a transfer of the cash to one or more TSP funds before converting the funds to the Roth TSP.

Federal and State Tax Liabilities Associated With Roth TSP In-Plan Conversions

When a traditional TSP participant converts before-taxed money from their traditional TSP balance, the Roth TSP in-plan conversion becomes part of their taxable income for the year in which the conversion was performed. This means that the participant will owe income tax (federal and state, if the participant is a resident of a state that taxes traditional TSP withdrawals) at the participant’s marginal income tax rate. Note that since the conversion adds to the participant’s taxable income for the year in which the conversion(s) were performed, the conversion(s) could push the participant into a higher marginal tax rate.

A Roth TSP in-plan conversion is not eligible for federal income tax withholding because money does not leave the traditional TSP account. A conversion only moves money from the traditional TSP balance to a Roth TSP balance within the TSP participant’s TSP account.

The conversion amount is taxable at the time of conversion. Since there is no withholding on Roth TSP in-plan conversions, the TSP participant is advised to consider making federal (and state) estimated payments to the IRS and, if applicable, to a state revenue and tax department. In order to accomplish this, the IRS has set up a timetable calling for estimated tax payments four times a year. Although the payments are commonly called “quarterly,” the payments do not coincide with calendar year quarters. The following table summarizes the quarterly income periods and the due dates for estimated tax payments for calendar year 2026:

In any quarter in which an individual received a substantial amount of taxable income (say more than $10,000), the individual should make a federal estimated tax payment. The individual should not wait until they file their federal income tax return for that year in the following year. This is because if they owe more than $1,000 in federal income tax, they could be subject to an underwithholding penalty.

The following example illustrates:

Example 2. Michael, a federal employee, converted $20,000 traditional TSP to Roth TSP on June 25, 2026. When added to his other taxable income for 2026, Michael is in the 24 percent federal marginal tax bracket. Michael therefore owes 24 percent times $20,000, or $4,800, of federal income tax resulting from the $20,000 Roth TSP in-plan conversion. Because the $20,000 conversion occurred during the 3rd quarter of 2026, Michael should make an estimated tax payment of $4,800 no later than September 15, 2026.

Roth TSP in-plan conversions started officially on January 28, 2026. Many federal employees and retirees and Uniformed Service members performed Roth TSP in-plan conversions during 2026 but may not have made estimated tax payments. They are advised to make those estimated tax payments as soon as possible, even though the April 15, 2026 and June 15, 2026 estimated tax payment deadlines have passed. For conversions performed between September 1, 2026 and December 31, 2026, TSP participants should be sure to make estimated tax payments no later than January 15, 2027.

TSP participants who have made or who are considering making a Roth TSP in-plan conversion are advised to consult with a tax professional to review how to make federal and state estimated tax payments.