TSP to Roth IRA Conversion: The 2026 Federal Employee Guide

Federal employees and retirees hold over $900 billion in Thrift Savings Plan accounts — the largest defined-contribution plan in the United States. If your retirement savings are concentrated in a traditional TSP, the Roth conversion math applies to you just as it does to anyone with a traditional IRA or 401(k). But the mechanics and the strategy have three elements unique to federal employees: a brand-new in-plan conversion option launched in 2026, a FERS pension that compresses your available bracket room, and an extended golden window that can run 13+ years for the 1960 cohort.

Why convert a TSP to Roth?

A traditional TSP and a traditional IRA operate the same way for tax purposes: contributions were pre-tax, growth is tax-deferred, and every withdrawal in retirement is ordinary income. If your future tax rate on those withdrawals — amplified by required minimum distributions starting at age 73 or 75 — will be higher than your rate today, converting now locks in the lower rate permanently.

For a federal employee in the Roth conversion golden window — the years between separating from service and when RMDs begin — this gap can be significant. A FERS retiree who leaves at the minimum retirement age (56–57 for most current federal employees) and delays Social Security to 67 or 70 has a 10 to 14 year window of relatively low income before RMDs and SS income stack up. That window is where conversions are cheapest.

The 1960-and-later cohort has the longest runway: under SECURE 2.0 § 107, RMDs don't begin until age 75.² A federal employee born in 1965 who retires at 57 has an 18-year window between separation and first RMD — more than enough time to convert a large TSP at low rates.

Two conversion paths in 2026

Federal employees now have a choice that didn't exist before 2026:

Both paths trigger the same tax result: the converted amount is ordinary income in the year of conversion. The difference is administrative and strategic — which path is better depends on your age, employment status, and what you want to do with the money after conversion. See the comparison section below.

Path 1: In-plan Roth TSP conversion (new January 2026)

Starting January 28, 2026, TSP participants can initiate a Roth in-plan conversion through the My Account portal on TSP.gov. You choose a dollar amount, confirm the tax consequence, and the FRTIB moves the balance from your traditional TSP to your Roth TSP. No rollover, no new accounts, no check-cashing.¹

Rules for in-plan conversions:

• Eligibility: Any vested TSP participant. No income limit. No age requirement. Available while employed or after separation.
• Proportional conversion: The IRS requires that in-plan conversions include a proportional share of both the taxable and the tax-exempt (combat pay or after-tax) portions of your traditional TSP balance. You cannot choose to convert only the taxable portion.
• Frequency: Up to 26 in-plan conversions per calendar year per TSP account. Participants with both a civilian and a uniformed services TSP account can convert from each separately.
• Deadline: December 31 of the tax year in which you want the conversion counted. This mirrors the standard Roth conversion deadline for traditional IRAs.
• Taxes owed: The taxable portion of the converted balance is ordinary income for that year. Do not withhold taxes from the TSP balance itself — pay from outside funds. Withholding from the conversion amount shrinks your Roth account by the withheld portion, erasing a significant share of the long-term benefit.

Path 2: Roll TSP out to a Roth IRA

If you want to move your money to a Roth IRA at Fidelity, Vanguard, Schwab, or another custodian — either for investment flexibility or account consolidation — you roll the traditional TSP directly to the Roth IRA in a single step. The full pre-tax balance distributed is taxable income in the year of the rollover, just like any other Roth conversion.

There are two ways to execute this. Only one of them avoids a costly withholding trap.

IRC § 3405(c) requires 20% federal withholding on any eligible rollover distribution paid directly to the participant — even if you intend to complete the rollover within 60 days.³ On an $800,000 TSP distribution, the TSP withholds $160,000. To complete a full rollover to the Roth IRA, you must deposit the full $800,000 within 60 days — meaning you'd have to cover the $160,000 gap from outside funds. Most people can't, so only $640,000 enters the Roth IRA and the $160,000 withheld is treated as a taxable distribution (and a potential 10% early withdrawal penalty if under 59½).

To request a direct rollover to a Roth IRA: Open the Roth IRA at your target custodian first. Then contact TSP (via My Account on TSP.gov or by phone) and request a "direct rollover to Roth IRA." TSP will ask for your custodian's name, account number, and mailing address, then wire the funds directly.

When you can roll out: separation vs. age-59½ in-service

Unlike the new in-plan conversion (which has no employment requirement), rolling TSP money out to an IRA requires one of two triggering conditions:

1. Separation from federal service (any age). Once you leave your federal job — retirement, resignation, or end of appointment — you can roll out any or all of your vested TSP balance at any age. There is no minimum age requirement. A FERS employee who separates at 56 under MRA+30 rules can start rolling out immediately.

2. Age-based in-service withdrawal (still employed, age 59½+). Active federal employees who have reached age 59½ can take an age-based in-service withdrawal from their TSP account. The withdrawal can be all or part of the vested account balance (minimum $1,000), and you may make up to four such withdrawals per calendar year.⁴ You can direct this withdrawal as a direct rollover to a Roth IRA, triggering the conversion tax. This allows current federal employees to begin Roth conversions before retirement — up to four times a year.

The pro-rata advantage — TSP is excluded

The pro-rata rule forces anyone with pre-tax IRA money to recognize a proportional share of their total pre-tax IRA balance on every Roth conversion. If you have $950,000 in a traditional IRA and $50,000 in after-tax IRA basis, roughly 95% of every dollar you convert is taxable — regardless of how you direct the conversion.

TSP balances are completely excluded from the pro-rata calculation. Under IRC § 408(d)(2), only traditional IRAs, SEP IRAs, and SIMPLE IRAs are aggregated in the pro-rata denominator. Employer-sponsored qualified plans — 401(k), 403(b), 457(b), and TSP — are excluded.⁶

This creates two planning opportunities:

1. Roll the TSP out first, before combining with IRA money. A direct TSP-to-Roth IRA rollover is taxed only on the TSP balance — it's not blended with any existing traditional IRA pre-tax money. Each conversion is its own clean transaction.
2. Use TSP to clear the IRA pro-rata problem. If you have existing pre-tax traditional IRA balances and want to do a low-cost Roth conversion of after-tax IRA basis, you can roll the pre-tax IRA funds into your active TSP account (if the plan accepts incoming rollovers). This removes those pre-tax dollars from the IRA aggregation calculation, leaving only after-tax basis — which can then be converted to Roth nearly tax-free. See our pro-rata rule guide for the mechanics.

The FERS golden window: pension + SS timing

The Roth conversion math for federal employees is shaped by a three-part income timeline unique to FERS: pension income (immediate), Social Security (delayed to 62–70), and TSP RMDs (starting at 73 or 75). Understanding when each piece turns on determines how much bracket room you have for conversions.

The bracket compression problem: A FERS pension of $50,000–$70,000 per year immediately occupies a large share of the 12–22% bracket, leaving less room for conversion at lower rates. A federal employee converting $80,000 per year with a $55,000 pension pays a higher effective rate on the conversion than someone with no pension — because the conversion dollars land on top of the pension income, not from zero.

This makes the first years after separation — before Social Security starts — the most valuable conversion years. Once SS begins, combined income rises (and 85% of SS becomes taxable above $34,000 single/$44,000 MFJ threshold), shrinking the affordable conversion window further.

For the 1960+ cohort with RMD age 75: the golden window runs from separation at MRA (~56–57) through age 75 — potentially 18 years. Within that window, the pre-SS years (separation through age 62 or whenever SS starts) typically offer the lowest effective conversion rate.

Worked example: Susan, age 62, FERS retiree

Susan retired from federal service in 2026 at age 62 after 31 years. Born in 1964, her SECURE 2.0 RMD age is 75 — giving her a 13-year golden window.²

Her situation:

• TSP balance: $850,000 (all traditional, no Roth TSP)
• FERS pension: $54,560/year (1.1% × 31 years × $160,000 high-3 average salary at 62+)⁵
• Social Security: delaying until 67 (FRA), estimated $28,400/year
• No traditional IRA — all retirement savings in TSP
• Filing single; 2026 standard deduction $16,100⁷
• On Medicare at 65 — IRMAA exposure begins two years after large conversion years

Her annual conversion ceiling (before Medicare at 65):

Before she turns 65 and IRMAA applies, Susan's ceiling is set by the 24% bracket top. MAGI of $197,300 is the top of the 24% bracket for single filers; above that, the 32% bracket kicks in.⁷ Her pension occupies $54,560 of that, leaving up to $142,740 in conversion room before entering 32% territory — though in practice she'll want to stay well below the IRMAA Tier 1 at $106,000 MAGI once she's on Medicare.

Her Medicare-aware ceiling (ages 65–75):

IRMAA Tier 1 for single filers is $106,000 MAGI in 2026.⁸ With her $54,560 pension counted in MAGI, Susan can convert up to $51,440/year and stay below Tier 1 (MAGI: $54,560 + $51,440 = $106,000).

Tax on a $51,440 conversion:

• MAGI: $106,000
• Taxable income: $106,000 − $16,100 = $89,900
• Federal tax on $89,900: 10% × $11,925 + 12% × $36,550 + 22% × $41,425 = $1,193 + $4,386 + $9,114 = $14,693⁷
• Federal tax on pension alone (without conversion): $36,700 taxable → $4,166
• Incremental tax on the $51,440 conversion: $14,693 − $4,166 = $10,527 → 20.5% effective rate

What she avoids: If Susan does not convert, her $850,000 TSP grows to approximately $1.93 million by age 75 at 6% annual growth. Her first-year RMD (ULT divisor for age 75: 24.6) is $78,455. Add $54,560 pension + $28,400 SS (85% taxable above the combined income threshold = $24,140 SS in income) = total ordinary income of ~$157,155. Taxable income: $157,155 − $16,100 = $141,055. Federal tax alone: approximately $25,500 — and the RMDs grow every year from there, pushing her deeper into the 24% bracket. IRMAA surcharges are a near-certainty.

By converting $51,440/year for 10 years (ages 62–72), Susan converts roughly $660,000 at an average effective rate of ~20%, avoiding 24–32% rates on the same dollars later. Estimated lifetime federal tax savings: $75,000–$130,000, depending on TSP growth and Social Security timing.

In-plan Roth TSP vs. rolling to a Roth IRA: which to choose

Now that both options exist, the choice isn't obvious. Here's how to think about it:

Choose the in-plan Roth TSP conversion when:

• You're still employed and haven't reached 59½ — the in-plan option is your only path
• You want simplicity — no new accounts, no rollover paperwork
• You're happy with TSP's existing fund lineup (G, F, C, S, I, L funds)
• You plan to roll to a Roth IRA after separation anyway — in-plan now, rollout later is fine
• You want up to 26 conversion tranches per year to smooth the tax hit across months

Choose to roll to a Roth IRA when:

• You've separated from service and want to consolidate accounts at a single custodian
• You want broader investment options beyond TSP's five index funds
• You have after-tax IRA basis you want to handle using the reverse-rollover strategy
• Your plan involves sequential Roth conversions over many years and you prefer managing them through an IRA

Common mistakes federal employees make with TSP Roth conversions

1. Withholding taxes from the TSP distribution. Whether using the in-plan option or a direct rollout, paying conversion tax from TSP assets rather than outside funds can cost you $50,000–$100,000+ in lost compounding on a large balance over 20 years. Always pay from a taxable account or estimated taxes.
2. Ignoring the FERS pension in the MAGI calculation. The pension counts in MAGI immediately at retirement. Federal employees often underestimate how much bracket room is already consumed before the first TSP conversion dollar is added. Run the math before assuming you can fill the full 22% or 24% bracket with conversions.
3. Missing the IRMAA two-year lookback. IRMAA is based on MAGI from two years prior. A large conversion in 2026 affects Part B and Part D premiums in 2028. Spreading conversions across multiple years typically keeps you under the Tier 1 threshold ($106,000 single, $212,000 MFJ in 2026). For the full strategy, see our IRMAA guide.
4. Taking an indirect rollover and triggering 20% withholding. Always request a direct rollover when rolling TSP to a Roth IRA. Never let TSP send a check to you.
5. Converting in the wrong order if you're 73+ with active RMDs. RMDs must come out before any Roth conversion. You cannot convert your RMD dollar — it must be distributed first. If you're already in RMD territory, size your annual conversion after accounting for the mandatory RMD income. A QCD strategy can offset RMD income if you're charitably inclined.⁹
6. Forgetting the SRS in pre-62 income estimates. If you retired early under MRA+30 rules, the Special Retirement Supplement adds taxable income to your MAGI until age 62. This is easy to overlook in multi-year projections.
7. Assuming TSP in-plan conversions are available retroactively. In-plan Roth conversions in TSP are effective January 28, 2026, going forward. Conversions completed before that date required a distribution or rollout. If your plan included conversions you expected to execute before 2026, verify how the new rules affect your timeline.