The short version
For as long as the Roth TSP has existed, federal employees and service members who wanted to convert traditional retirement dollars to Roth faced a two-step detour: roll money out of the Thrift Savings Plan into an IRA, then convert it there, giving up the TSP’s costs and funds along the way. That constraint is gone. On January 28, 2026, following a final rule from the Federal Retirement Thrift Investment Board, the TSP launched Roth in-plan conversions: any participant or spousal beneficiary with at least $500 of vested traditional balance can now convert to Roth directly inside the plan, through the My Account portal. This article covers the mechanics of the new feature, the tax rules that govern it (including the two different five-year clocks), the newly interesting decision between converting in-plan and the old roll-to-IRA route, and how conversions fit the distinctive shape of a federal or military retirement. It is a genuinely significant upgrade. It is also irrevocable, taxable, and easy to do badly, which is why the mechanics deserve more attention than the headline.
What Actually Launched
The feature itself is simple to describe. A participant with a traditional (pre-tax) TSP balance can convert to their Roth TSP balance in requests of $500 or more, up to 26 conversions per calendar year. One structural catch: at least $500 must remain in each payroll contribution source after a conversion (your own traditional contributions, agency or service matching, the automatic 1%, and any tax-exempt balance), and any source sitting at $500 or less is not eligible at all. The practical meaning is that a regular participant can never fully empty the traditional balance in-plan. Rollover-sourced dollars carry no leave-behind requirement, and spousal beneficiaries holding inherited TSP accounts are exempt from it entirely, so they can convert the whole balance. The transaction happens inside the plan: same account, same funds, same fee structure, different tax registration. The request runs through the TSP’s online portal, and the TSP has built conversion calculators and educational webinars around the launch.
Three features of the rule deserve to be printed in bold in your mind before anything else.
The converted amount is ordinary income in the year of conversion. Convert $100,000 and your taxable income rises $100,000, with everything that implies for your bracket, your Medicare premium tiers two years out, and every other threshold we write about constantly. (Uniformed-services readers with combat-zone tax-exempt balances get a partial exception, covered below.)
The conversion cannot be undone. Recharacterization does not exist here, exactly as it no longer exists for IRA conversions. Once processed, the transaction is final, which means the sizing decision carries all the weight and deserves to be made against known income, late in the year, with a buffer under whichever ceiling binds.
The tax cannot come from TSP money. The TSP does not withhold on conversions at all, because no money ever leaves the account, and the plan’s rules require the tax to be paid from funds outside the TSP. We have argued for years that conversion taxes should be paid from outside cash so every converted dollar actually reaches the Roth; the TSP has now made our position mandatory for its participants. The practical consequence is real: a $100,000 conversion at a 24% marginal rate requires roughly $24,000 of accessible non-retirement cash, and the conversion plan has to include the funding plan.
Why This Changes the Playbook
Under the old regime, the conversion decision was entangled with the rollover decision. Converting meant leaving, at least partially: money had to move to an IRA first, surrendering the TSP’s institutional pricing, the G Fund (an instrument that exists nowhere else), and the plan’s simplicity. Plenty of federal retirees who would have benefited from systematic conversions never did them, because the price of admission was an exit they didn’t otherwise want. Our earlier piece on TSP rollover strategy walked through that stay-or-go decision, and everything in it about fees, the age-55 separation rule, and partial rollovers still stands.
What’s new is that conversion no longer requires the exit. A retiree who loves the G Fund and the fee structure can now run a multi-year conversion ladder without leaving the building. That unbundling is the real story of the launch: the rollover question and the conversion question are finally separate questions, and each can get its own answer.
The roll-to-IRA-then-convert route still exists, and still wins for some situations. An IRA offers the full investment universe, more flexible withdrawal mechanics, the ability to convert or distribute the traditional balance down to the last dollar with no leave-behind rule, and, later in life, qualified charitable distributions, which can only be made from IRAs, never from the TSP. A converting retiree with charitable intentions may deliberately keep traditional dollars IRA-side for future QCDs while converting other layers. The point is not that in-plan is better. The point is that the decision is now about what you want, not about what the plumbing forces.
Keeps: TSP fee structure, the G Fund, one-account simplicity.
Requires: $500 vested minimum, outside cash for the tax.
Cannot: be undone, convert the last $500 in each payroll source, or ever make qualified charitable distributions.
Gains: full investment universe, flexible withdrawal mechanics, access to the entire balance, future QCD capacity.
Gives up: TSP pricing and the G Fund on the moved dollars.
Cannot: be undone either, once converted.
The Two Five-Year Clocks
Roth conversions inside a workplace plan carry two distinct five-year rules, and conflating them is the most common error in every conversion conversation we have.
The first clock governs tax-free earnings. For any Roth TSP withdrawal to be fully qualified, meaning earnings come out tax-free, the participant must be 59½ (or meet disability/death rules) and five years must have passed since January 1 of the year of their first Roth TSP contribution or conversion. One clock per account, started by the first Roth dollar in, satisfied once forever. A 62-year-old making their first-ever Roth TSP conversion this year starts this clock as of January 1 of this year, and earnings are not fully tax-free until the clock runs, even though they’re past 59½.
The second clock governs the 10% early-distribution penalty on converted principal. Each conversion starts its own five-year penalty clock, running from January 1 of its conversion year, for withdrawals taken before 59½; pulling converted dollars out early, inside that window, triggers the penalty that the conversion itself avoided. For most federal retirees converting in their 60s this clock is moot. For a service member converting at 45, it is not, and it is one reason conversion dollars should be dollars you won’t need soon. We covered both clocks in depth in our Roth five-year rules piece; the TSP launch simply gives them a new place to run.
One more rule worth its own sentence: Roth TSP balances are no longer subject to required minimum distributions at all. Every dollar converted is a dollar removed from the future RMD base, which is most of the strategic case for converting in the first place. One sequencing rule for those already in RMD years: the year’s required distribution must be taken before any conversion, and the RMD itself can never be converted. We cover the broader RMD machinery in our complete RMD guide.
Conversions in the Shape of a Federal Retirement
The generic conversion logic we’ve written about elsewhere, fill deliberately chosen ceilings during low-income windows, applies to federal households with full force. What’s distinctive is the shape of their income floor.
A FERS retiree typically starts an annuity immediately at retirement, often with the Special Retirement Supplement bridging to 62, and an active-duty military retiree’s pension begins the month after separation. That guaranteed floor means fewer truly-zero-income years than a typical private-sector early retiree, but it also makes the windows that do exist unusually legible: the years between retirement and Social Security claiming, the years before RMDs begin at 73 or 75, and, for households who retire before 62, the stretch where the annuity is the only income and multiple brackets sit empty above it. Because the floor is fixed and known, the conversion capacity above it can be computed rather than guessed, which is precisely the kind of problem a multi-year projection is built for.
Military households get one more window worth naming: years with combat-zone tax exclusion or other unusually low taxable income are conversion gold generally, and the transition year after separation, before civilian income ramps, is the classic one. Our earlier TSP rollover piece walked through that transition; the difference now is that executing on it no longer requires the IRA detour.
Service members with combat-zone tax-exempt contributions get one wrinkle worth knowing. Those nontaxable dollars are convertible too, but only pro rata: the IRS requires every conversion to draw proportionally from the taxable and nontaxable portions of the traditional balance, so there is no converting only the tax-exempt slice. A conversion from a balance that is 10% tax-exempt will itself be 10% tax-free, no more. Still, for careers that banked meaningful deployment dollars, that proportion quietly discounts the tax cost of every conversion the household ever runs.
And the same threshold discipline that governs every conversion governs these: each converted dollar raises the income that Medicare’s IRMAA tiers will read two years later, feeds the same MAGI definitions we map in our projection work, and belongs inside a plan that sizes the conversion in the fourth quarter against known income, pays the tax from outside cash on the safe-harbor schedule, and leaves a buffer under the ceiling that binds. Because the TSP withholds nothing on a conversion, the estimated-payment side of that plan is not optional. Irrevocable transactions deserve conservative sizing. That was our position when the IRS ended recharacterization, and the TSP’s rule now enforces the spirit of it.
How We Think About the In-Plan Decision
When we model this for federal and military households, the sequence looks like this. First, whether to convert at all and how much per year, which is the standard lifetime-tax-rate question, answered by projection, not slogan. Second, only then, the venue: in-plan for participants who value the TSP’s costs, the G Fund, and one-account simplicity; the IRA route where investment flexibility, withdrawal mechanics, full-balance access, or future QCD capacity genuinely matter to the plan; sometimes both, a partial rollover feeding IRA-side conversions while the TSP balance converts in place. Third, the funding and timing mechanics: outside cash identified for the tax, safe harbor covered, the transaction sized late in the year, every threshold checked in both yardsticks. The venue question is the new one, and it’s the least important of the three. The households that get this right are the ones who treat January’s headline as a new tool inside an existing plan, not as a reason to convert.
Common Questions
Can I convert while I’m still working, or only after I separate?
Any participant with a vested traditional balance can convert, active or separated, in requests of $500 or more, subject to a $500 leave-behind in each payroll contribution source. There are no income limits. For active employees the analysis is usually harder, since salary already fills the lower brackets and conversions stack on top; the compelling windows tend to arrive with retirement, a transition year, or another income dip. Eligibility is not the constraint. Bracket space is.
Can I undo a TSP Roth conversion if I change my mind or the market drops?
No. Conversions are irrevocable once processed, the same rule that has applied to IRA conversions since recharacterization ended. This is why we size conversions against known income late in the year, with a deliberate buffer under the binding threshold, rather than converting a round number in February and hoping.
Where does the tax money come from?
From outside the TSP, by rule. The plan does not withhold on conversions at all, since no money leaves the account, and it does not permit paying the tax from TSP assets. Practically, that means a conversion plan is also a cash plan, coordinated with your estimated payments or withholding so the safe harbor stays satisfied in the year the income lands.
Does converted money still face required minimum distributions?
No. Roth TSP balances are not subject to RMDs, so every dollar converted permanently leaves the future RMD base. For households facing large distributions at 73 or 75 from decades of traditional TSP contributions, shrinking that base is usually the core strategic reason to convert at all. One caveat for those already taking RMDs: the year’s RMD must come out first, and the RMD itself cannot be converted.
Should I convert inside the TSP or roll to an IRA and convert there?
Decide whether and how much to convert first; the venue is secondary. In-plan preserves the TSP’s fee structure, the G Fund, and single-account simplicity, at the cost of the leave-behind rule. The IRA route buys investment flexibility, more granular withdrawal control, access to the entire balance, and the ability to make qualified charitable distributions later, which the TSP cannot do. Many households reasonably use both. The wrong reason to pick a venue is a sales pitch; the right reason is a plan that needed what that venue offers.