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Benefits Digest | Major TSP changes for 2026

DATE: Thursday, September 25, 2025


Starting in 2026, the Thrift Savings Plan (TSP) will introduce two major changes that affect all participants – both involving Roth TSP accounts.

The first change allows TSP participants to make Roth In-Plan Conversions, meaning you can convert money from your Traditional (pre-tax) balance to your Roth (after-tax) balance directly within your TSP account. This eliminates the need to roll over money to a Traditional IRA and then convert it to a Roth IRA outside the TSP.

The second change is related to your catch-up contributions. It requires federal employees who are 50 or older and earned more than $145,000 in the prior calendar year to make catch-up contributions to the Roth TSP, rather than the Traditional TSP.

Below is a detailed overview of both changes.


Roth In-Plan Conversions

Starting in January 2026, you’ll be able to convert money from your traditional (pre-tax) balance to your Roth (after-tax) balance within your TSP account. This process is called a Roth in-plan conversion. If you don’t already have a Roth balance in your TSP account, your first Roth in-plan conversion will create one.

If you’re considering doing a Roth in-plan conversion, it is strongly recommended that you consult a tax advisor. They can help you understand how the conversion would affect your taxable income and estimate how much taxes you may owe.

When you convert pre-tax money from your traditional TSP balance, the converted amount becomes part of your taxable income for that year. This means that you’ll owe 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 converted amount in your TSP account to pay taxes.

TSP will release more information on these changes in the coming months. They are also looking at developing a calculator that will help you estimate the effects of converting traditional money to Roth money in your TSP account.


TSP Catch-Up Contributions to Roth Account for High-earning Employees

Beginning in 2026, if your wages in the previous calendar year were above $145,000, the eligible catch-up contributions you make will need to go into your Roth TSP account.

This change is based on the SECURE 2.0 Act of 2022 and applies only to catch-up contributions for employees earning above a specific income threshold set by the IRS. The threshold may be adjusted each year to account for inflation.

How to Know if This Affects You

To see if this rule applies to you, check your Medicare wages listed in box 5 of your W-2 form. If your total Medicare wages for 2025 are over the threshold set by the IRS, any eligible catch-up contributions you make for 2026 will automatically go to your Roth balance.

Important Notes:

  • Roth contributions are made with after-tax income, so you’ll pay income tax on that money in the year you earned it, based on your current tax rate.
  • If this provision applies to you and you are currently making Traditional TSP contributions, your contributions will automatically switch to Roth TSP once you reach the annual elective deferral limit.
  • If you work in multiple TSP-eligible positions during a given year, the sum of all those wages will count toward the income threshold. However, wages from non-TSP-eligible jobs (e.g., outside employment) won’t count.

No Action Needed

The new changes will be seamless from the employee standpoint, and any adjustments will be automatically calculated within your TSP account.

Stay Tuned

In late November or early December, we will provide you with additional updates when we send out our annual TSP memo discussing the 2026 IRS contribution limits and other upcoming changes.

To learn more about the TSP, visit their website at www.tsp.gov. In the meantime, you can review general information about Traditional and Roth TSP accounts in these TSP booklets:


Thank you for taking the time to read our monthly Benefits Digest. If you would like to discuss these topics and more related to employee benefits or retirement, please reach out to your servicing HR Representative or contact Blake Dodge, Chief of Employee Benefits, at 303-969-7085.

 

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