The Federal Retirement Thrift Investment Board (FRTIB) has issued a final rule, effective January 28, 2026, that introduces Roth in-plan conversions to the Thrift Savings Plan (TSP). This long-anticipated update allows participants to convert funds from their traditional (pre-tax and tax-exempt) TSP balances into Roth (after-tax) balances within the plan.

Roth In-Plan Conversions Explained

A Roth in-plan conversion enables TSP participants to move money from their traditional account to their Roth account. While the converted amount becomes taxable in the year of the conversion, earnings on the Roth balance can be withdrawn tax-free in retirement if IRS requirements are met.

The TSP notes:

When you convert pre-tax money from your traditional TSP balance, your Roth in-plan conversion amount will become part of your taxable income for the year. This means that you’ll pay income tax on the conversion amount based on your income tax rate. You must pay the income tax on the conversion amount using personal funds from another source, such as a savings account. You cannot use part of the conversion amount in your TSP account to pay taxes.

Key points of the final rule include:

Conversion Limits: Participants may request up to 26 conversions per calendar year, aligning with biweekly pay periods.

Eligibility: Active participants, separated participants maintaining an account, and beneficiary participants (spousal) may convert. Non-spouse beneficiaries and alternate payees are ineligible.

Minimums: A $500 minimum per conversion and a $500 minimum balance in each contribution type must be maintained.

Tax Treatment: Conversions trigger taxable income but are not subject to withholding. Taxes must be paid from outside funds.

The FRTIB will provide educational materials, including web content, notices, and interactive tools, to explain the tax implications of Roth conversions. Additionally, the agency is developing a tax calculator to assist participants in assessing the financial consequences of Roth conversions.

Responses to Comments and Amendments From the Proposed Rule

Users submitted comments in response to the FRTIB’s proposed rule regarding the Roth in-plan conversions. The FRTIB addressed some of the comments in its final rule. Below is a detailed explanation of these comments and the corresponding FRTIB responses.

Conversion Frequency  

Two commenters proposed that the final rule specify the maximum number of Roth conversions allowed per year rather than leaving it to the discretion of the TSP record keeper. In response, the FRTIB agreed and revised the rule to explicitly permit participants to request up to 26 conversions per calendar year.

This aligns with the biweekly pay schedule used by many federal payroll offices. Participants are not restricted to one conversion per pay period; multiple conversions are allowed within the same pay period.

Eligibility to Request In-Plan Conversions  

A commenter requested clarification on who is eligible to request a Roth in-plan conversion. The FRTIB confirmed that “a participant or a beneficiary participant” may request a conversion. This includes:

Active participants

Separated participants who retain TSP accounts

Surviving spouses with beneficiary participant accounts

Non-spouse beneficiaries and alternate payees are not eligible to request in-plan Roth conversions.

Conversion of Tax-Exempt Balances  

Another commenter recommended allowing Roth conversions of tax-exempt balances (e.g., contributions from combat zone pay) in addition to pre-tax amounts. The FRTIB confirmed that the definition of “traditional balance” under 5 CFR 1690.1 includes both tax-exempt and pre-tax balances. Therefore, such conversions are permitted. However, they must follow IRS pro rata rules, meaning conversions must proportionally include pre-tax and tax-exempt amounts based on their ratio within the total traditional balance.

$500 Conversion Minimum  

One commenter suggested removing the $500 minimum for Roth in-plan conversions to allow for immediate or automated conversions. The FRTIB declined this suggestion and maintained the minimum, explaining that the $500 threshold discourages small, frequent transactions, which would increase administrative burdens and costs, and ensures operational efficiency for TSP’s recordkeeping system.

$500 Minimum Balance Requirement  

Four commenters opposed the rule requiring participants to retain $500 in each balance type that receives payroll contributions. The FRTIB explained that this buffer mitigates payroll errors, which are often less than $500, by preventing negative balances and operational complications. As a result, the final rule retains the $500 minimum balance requirement for all contribution types: tax-deferred, tax-exempt, agency automatic (1%), and agency matching contributions.

Automatic Conversion Tool  

Two commenters suggested the TSP implement a tool to automatically convert traditional balances to Roth once a specified threshold is reached. The FRTIB declined, noting that Roth conversions have significant tax consequences and must remain deliberate decisions by participants. Automation may lead to unintended tax liabilities, so the rule does not permit automatic conversions.

Paying Taxes on Converted Amounts

Three commenters suggested that the final rule allow for withholding or specify the withholding rates for taxable converted amounts. However, the FRTIB said it cannot adopt these suggestions because IRS guidance states that no withholding applies to a Roth in-plan conversion of an otherwise nondistributable amount. Additionally, no part of the conversion can be voluntarily withheld under 26 U.S.C. 3402(p). Consequently, participants must use personal funds from another source, such as a savings account, to fulfill their tax obligations.

Final Thoughts

The FRTIB’s final rule is another step in preparation for launching the Roth in-plan conversions within the TSP on January 28, 2026. Participants should prepare for the tax implications and take advantage of the new guidance and tools offered by the TSP prior to making conversion decisions as well as consulting with tax and/or financial advisors for guidance in deciding whether to use Roth conversions in the TSP as part of their retirement savings plans.

© 2026 Ian Smith. All rights reserved. This article
may not be reproduced without express written consent from Ian Smith.