TSP to offer Roth conversions in 2026

The Thrift Savings Plan (TSP) will offer participants the option to convert their traditional investments to Roth status starting in 2026. Officials announced this change at the November meeting of the TSP’s governing board. Traditional investments are made with pre-tax money, but both the investment and earnings are taxed when withdrawn. Roth investments use after-tax money, but withdrawals, including earnings, are tax-free if certain conditions are met. Roth balances also do not require minimum distributions, which traditional balances need starting at age 73. Investors can choose between traditional and Roth options for their personal contributions. However, agency contributions for Federal Employee Retirement System (FERS) employees and military personnel stay in traditional status. Converting to Roth would require paying taxes on the traditional balance as if it were a withdrawal. These taxes “cannot be paid with TSP assets,” according to the meeting presentation. A recent participant survey showed that 24 percent of respondents understood Roth conversion and its tax implications. 35 percent said they would likely use a Roth conversion feature if offered. As of the end of October, the TSP had $947 billion in investments, with $68 billion in Roth status. Nearly 7.2 million accounts are held by current and former federal and military personnel. 2.7 million have money in Roth status. This includes 1.1 million accounts of current or former FERS employees, whose average Roth balance is about $32,000 out of an average total balance of about $192,000. The TSP’s international fund, known as the “I” fund, has officially switched from the “MSCI Europe, Australasia and Far East” benchmark index to the “MSCI All Country World ex USA ex China ex Hong Kong Investable Market” benchmark index. This change expands the I fund’s exposure for participants, moving from about 55% of non-U.S. market capitalization to 90%.

Roth option available to tsp participants

The transition to the new I fund index took full effect on Oct. 30. It more than doubles the number of countries included in the I fund. China and Hong Kong were excluded due to possible market volatility from investment restrictions on Chinese technology sectors. “Our investment consultant recommended moving to this index to try and insulate our participants from operational uncertainty and complexity,” said Kim Weaver, FRTIB Director of External Affairs. Starting in 2025, TSP participants can contribute slightly more to their accounts, following new 401(k) limits announced in early November. The 2025 contribution limit will be $23,500 for many participants. Those aged 50 and older can make additional catch-up contributions of up to $7,500, for a maximum total of $31,000 in 2025. Participants between ages 60 and 63 will have an even higher catch-up limit of $11,250, bringing their total to $34,750. Once participants turn 64, their catch-up limit will revert to the standard amount for those 50 and up. Throughout 2025, the FRTIB will prepare to launch the new Roth in-plan conversion option. Preparations include updating TSP communications materials and testing the computer system to ensure accurate tax information is generated for the IRS. Participants will soon be able to choose their preference for receiving TSP account statements either electronically or by U.S. mail. The FRTIB plans to email all participants with an email address on file whenever a new quarterly or annual statement is available. For security, participants will need to log into the My Account platform to access and view their statements. Those who prefer mailed statements can change their notification preferences by selecting “Manage Communications” on their account profile once logged in. Participants should expect a notice from the FRTIB in the coming weeks about these notification changes.