Big changes are coming to the Thrift Savings Plan (TSP), and they’re especially exciting for servicemembers and federal employees looking to maximize retirement savings. Starting in January 2026, TSP participants can convert traditional, pre-tax contributions into Roth, after-tax contributions through a Roth in-plan conversion. This new feature opens up strategic tax planning opportunities that could significantly impact your financial future. Here’s what you need to know from the military financial professionals with AAFMAA Wealth Management & Trust LLC (AWM&T).
What Is the Thrift Savings Plan (TSP)?
The TSP is a retirement savings and investment plan designed specifically for members of the U.S. Armed Forces and federal employees. It’s a key component of the Federal Employees Retirement System (FERS) and the Blended Retirement System (BRS) for servicemembers, offering low-cost investment options to help build a secure financial future.
How the TSP Traditionally Worked
Historically, TSP participants could choose two main types of contributions:
- Traditional TSP Contributions: Made with pre-tax income, reducing taxable income now but taxed as ordinary income upon withdrawal in retirement.
And/Or
- Roth TSP Contributions: Made with after-tax income, allowing for tax-free withdrawals (including earnings) in retirement, provided certain conditions are met.
Until now, there hasn’t been a way to convert existing traditional TSP funds into Roth funds.
What Are Roth Conversions, and How Will They Work?
A Roth in-plan conversion allows participants to shift money from traditional, pre-tax accounts to Roth accounts within the TSP. This means you’ll pay taxes on the converted amount in the year of conversion, but the funds will grow tax-free, there are no Required Minimum Distributions on Roth funds, and qualified withdrawals in retirement won’t be taxed.
When this feature becomes available in January 2026, participants will need to:
- Assess their taxable income for the conversion year to determine potential tax liabilities.
- Use external funds to pay the taxes incurred by the conversion (TSP assets cannot be used to cover taxes).
When Does This Take Effect?
The Federal Retirement Thrift Investment Board (FRTIB) plans to roll out Roth in-plan conversions starting in January 2026. Preparations are underway to update systems and ensure participants receive clear guidance before the feature goes live.
How Does This Benefit Servicemembers?
For military members, this change is particularly beneficial. Many servicemembers experience lower tax rates during active duty or deployments, making it an ideal time to take advantage of a Roth conversion. By paying taxes on TSP funds now, at potentially lower rates, servicemembers can lock in the ability to make tax-free withdrawals in retirement, when their income and tax brackets may be higher.
Additionally, Roth balances are not subject to Required Minimum Distributions (RMDs), providing greater flexibility for long-term retirement planning.
Take Control of Your TSP and Financial Future
Navigating the complexities of retirement planning, tax strategies, and Roth conversions can feel overwhelming. The military money professionals at AWM&T specialize in helping servicemembers make informed financial decisions.
If you’re considering how this change might affect your retirement strategy or want assistance managing your TSP, reach out to AWM&T today. Call 1-910-307-3500 or speak with a financial professional who understands your unique needs as a servicemember. Let’s build your bright financial future, today.
About Us
AWM&T was created in 2012 to meet the financial needs of military families. We provide experienced, trustworthy, long-range financial planning, investment management, and trust administration services to support financial independence and security. We aim to be the premier provider of fiduciary services by always working for AAFMAA Members’ best interests.
We are proud to share the mission, vision, and values of AAFMAA, our parent company, consistently building on AAFMAA’s rich history and tradition to provide Members with a source of compassion, trust, and protection. Through AAFMAA’s long-standing legacy and our financial expertise, AWM&T is honored to provide personalized wealth management services to military families across generations.
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