In 2026, the Thrift Savings Plan (TSP) will undergo some important changes. Two of the most impactful are:
- In-Plan Roth Conversions
- Catch-Up Contributions Required to Be Roth for those age 50 and older who earn above a certain income threshold
Both changes could affect your financial planning strategies and require some forward-thinking. Let’s break them down.
In-Plan Roth Conversions
The TSP is finally adding this long-anticipated feature. Unlike many civilian retirement plans, the TSP has not previously allowed in-plan Roth conversions. If you wanted to convert pre-tax (Traditional) TSP funds to Roth, you had to withdraw the money and eventually roll it into a Roth IRA.
This restriction was frustrating for those who preferred to keep their funds within the TSP. The TSP only permitted conversions if you were eligible for an age-based withdrawal or had separated from federal service. These rules limited flexibility for active participants.
Who: All TSP participants, except non-spousal beneficiaries and alternate payees
What: In-plan Roth conversions will now be allowed
When: Beginning in 2026
Impact: This can be a powerful tool for managing future taxable income. Participants may want to take advantage of low-tax years to convert some of their Traditional TSP balance to Roth, where qualified withdrawals are tax-free in retirement.
Examples:
- Early-career employees or service members may convert the government’s automatic and matching Traditional contributions to Roth while in lower tax brackets.
- Service members deploying to a CZTE area may plan conversions during periods when their income is non-taxable.
- Those nearing retirement may consider conversions in early retirement years when income drops.
Roth conversions can be beneficial, but like all planning decisions, they’re not universally good or bad. It really depends on your full financial picture.
Required Roth Catch-Up Contributions
This change stems from the SECURE Act 2.0. Although it was originally set to begin in 2024, implementation was delayed until 2026 to give plan providers and the IRS time to prepare.
Beginning in 2026, if you are age 50 or older and earned above a certain income threshold in 2025, any catch-up contributions you make must be Roth (after-tax). This applies even if your regular contributions are Traditional (pre-tax).
Who: Employees age 50+ with 401(k), 403(b), or TSP accounts who max out regular contributions ($23,500 in 2025) and are considered “high wage earners”
What: Catch-up contributions (an additional $7,500 in 2025) must be Roth if prior-year wages exceed the income threshold
When: Effective in 2026, based on 2025 income
How Much: 2025 income threshold = $145,000 in FICA wages = “high wage earner”
Automated: Yes, supposedly. The switch from Traditional to Roth catch-up contributions is intended to happen automatically, which is part of why the delay was needed to get systems in place. Still, I recommend paying attention to ensure it’s done correctly.
Impact: This change could affect those who have used Traditional catch-up contributions to reduce taxable income during peak earning years.
Examples:
- 37% marginal tax bracket: If that $7,500 is taxed at 37%, your tax bill could increase by approximately $2,775.
- 32% marginal tax bracket: If taxed at 32%, your tax bill could increase by approximately $2,400.
Nobody likes paying more in taxes, but these amounts are neither good nor bad in isolation. Their impact depends on your overall financial picture and long-term goals.
Final Thoughts
These upcoming TSP changes could have meaningful tax and retirement planning implications, especially for those nearing retirement or earning above the income threshold. Whether you’re considering Roth conversions or reassessing your contribution strategy, now is a great time to revisit your retirement plan.
If you’re unsure how these changes apply to your situation, consider consulting with a financial advisor who understands the TSP and government retirement systems. Proactive planning today can help you take full advantage of tomorrow’s opportunities.
Disclaimer:
This article is provided for educational, informational, and illustrative purposes only. It does not constitute tax advice, investment advice, or a recommendation to buy or sell any security. The content is general in nature and may not apply to your individual circumstances. Please consult a qualified tax professional, financial planner, and/or legal advisor for guidance specific to your situation.