Delivered on: Friday, November 21, 2025

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Two Big Changes Coming to Your TSP in 2026

How newly implemented laws affect your take-home pay and taxes

• CHANGES: What has changed, who is affected, and when it will happen
• WARNINGS: What you should know before you make any decisions
• IMPACT: The serious tax consequences you may face without knowing it
• REALITY: Why the TSP isn't responsible for the outcome of your actions

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Prefer to read instead? A Transcript of this Webinar is Below:

Welcome everyone to today's webinar on the Two Really big Changes coming to the TSP in 2026. These aren't your run-of-the-mill changes that we typically talk about each year with respect to how much you can contribute and maybe some fun changes, life cycle fun changes, all of those types of things. These are two fundamental changes within the TSP that come with some pretty big consequences. Let's go ahead and jump in.

Two Big Changes Coming to Your TSP in 2026

You guys know me, I'm your ProFeds presenter, Chris Kowalik. I love being able to do sessions like this where we can just try to bring some clarity to some otherwise muddy topics.

There are, like I said, two big changes coming to the TSP in 2026 and today, I want to talk about how those newly implemented laws are going to affect your take home pay and your tax situation now and later. It's pretty impressive what taxes can do to you and we want to make sure that everyone's going in eyes wide open.

Agenda

Our agenda today, we're going to talk about what's changed, who it's going to actually affect, and when it will happen. From a warning standpoint.

We want you to know what you should know before you make any of these big decisions, and a lot of that has to do with the impact of the very serious tax consequences that you very well may face without knowing it, if you're not reading some of the fine print.

And the reality of all of this is why the TSP just is not responsible for the outcome of your actions and you are the one that has to own the decisions that you are making in the TSP, and that's why it's even more important that you get super clear on how these new changes are going to work.

Summary of Changes

The summary of the changes, this is super high level just to kind of get them out on the table early.

#1: Change number one is catch-up contribution requirements for higher earners. I'm going to go into the details of what it means to be a higher earner and how the catch-up rules look a little different for those people.

#2: The second change is what we call an in-plan Roth conversion. That is a feature that allows you to take money that's already in your traditional TSP and make it Roth TSP so that it grows in a tax-free environment.

We're going to get to the details of all of these, but here we go. When we think of the current mixture versus future contributions, I want everyone to be super clear on the differences between these two things. We're going to talk about both of them today, but I want to make sure that we're all on the same page here.

Current Mixture vs. Future Contributions

The first is new money. New money is all of the money that you are going to continue to contribute to the TSP between now and the time you separate. You might actually retire, you might just leave the government, whatever that might look like for you. That's new money that we're going to be talking about.

The other part is existing money, so all of the money that you have already contributed in the past, like when you look at your TSP statement, that's the money that's already in the account, and both of these are going to be affected by the new changes in 2026. And so that's really the basis of today's session.

The next thing I want to talk briefly about before we jump into the details of these two changes, we need to talk specifically about the traditional and the Roth side of the TSP.

Tax-Advantaged Options in TSP (TRADITIONAL)

There's kind of a lot going on here, follow along here. First we're going to cover the traditional side of TSP, and I do this mostly for people who may not feel like they're very familiar with these or just don't quite have all the details.

And so if this is kind of review for you, don't worry, we're going to go a little deeper in some of the other things that we're talking about. For the traditional TSP, here's how it works.

We're going to start on the left-hand side. When the money goes into the TSP, if it's traditional money, you'll see that you save the tax today on the principal because it's a tax deduction to you, it this current tax year.

It's not taxed when it goes in. And that principle over time is going to grow. You see the growth shown in the gold box.

Here's what happens with the traditional on the backside though, when any of that money comes out, whether it's your original principle that you put in or any of the growth that's on the account, all of that is fully taxable to you later when you take it out.

Again, both the principle and the growth are going to be taxable to you. It felt good to get the initial tax savings on the front end of the account but maybe didn't feel so good on the backend when you have to keep paying taxes in retirement. That's the traditional side.

Tax-Advantaged Options in TSP (ROTH)

The Roth side works exactly the opposite. When the money goes in, when you contribute money into the TSP to the Roth side, you go ahead and bite the bullet and pay the tax today.

You don't get that immediate tax gratification. You go ahead and contribute with money that's already been taxed. That is your principle.

And when that principle grows, of course we see that in the gold box again, but when all of that money comes out, it's tax-free.

Ether way, in either one of these scenarios you are going to pay tax on the principle. That is a given. You're either going to pay it now or you're going to pay it later.

What's interesting though, and what I think really opens the eyes of federal employees with respect to the Roth is the growth being tax-free too.

And I've shown these two boxes pretty equal, but if I'm being honest, the principle of an account is typically much, much lower than the growth.

Especially if we've been in the CS&I funds for a long time while you're working and that money has grown and grown and grown and grown, the amount you put in actually becomes a smaller and smaller piece of that account because of the growth that the account has sustained.

I am a big fan of the Roth account simply because of that tax-free growth that's on the account for you to be able to have later and not have to pay any tax on it.

Now does that mean that all you should have is Roth? No, it isn't. There are lots of reasons to have other types of accounts, whether it's a traditional account, whether it's a taxable account, meaning you're paying tax along the way each and every year little by little.

There's lots of different styles of accounts out there that are there for different reasons, but the concept of the Roth is pretty impressive and we know that it's impressive because the government puts a restriction on how you can access accounts like this out in the private sector.

They're limiting who can contribute to a Roth IRA out there in the private sector. We know there's lots of good things tied to it because the government's restricting it. I say that a little tongue-in-cheek, but I think you guys can follow along.

Change #1 Catch-Up Contributions

We're going to dive into change number one, we're going to talk about catch-up contributions.

Real quick, catch-up contributions were designed so that people who are closer to retirement that realize that they're behind, they have a chance to dump more money than the average person can in accounts like this, whether it's TSP, a 401k, those types of things, they all have catch-up contribution pieces to them that allows those older workers to be able to contribute more.

We have to set the baseline for what all these numbers are for 2026. These aren't the changes I'm talking about today, but we do want to get the real numbers out there for everybody.

Employee’s TSP Contributions While Working in 2026

Here they are. For regular contributions, all employees can contribute up to $24,500 per year. No matter how old you are, you're allowed to at least contribute 24,500.

For these catch-up contributions, if you are going to be 50 or older on December 31st, 2026, you can contribute an additional $8,000 in 2026. That would be a total of $32,500.

Now that might be tough for some of you to be able to contribute, right? I mean, I'm not saying that it's easy to contribute 32,500, but you're allowed to do so.

Just last year a special catch-up contribution category that we refer to as the super catch-up or the special catch-up, is those employees who are age 60 to 63 on December 31st of 2026, they are allowed to contribute an additional $11,250, that's on top of the $24,500 that all employees can contribute.

For them they're looking at a total of $35,750 that they are allowed to contribute to the TSP. With all these numbers, this gives us at least a framework to be able to have a discussion about how all of this is going to change.

With respect to the numbers that we just reviewed, the 24,500 that all employees can contribute, the 32,500 that those who are 50 on December 31st of 2026 can contribute, and then that special group of those who are 60 to 63 on December 31st of 2026, they're allowed to contribute that 35,750.

We've already seen those numbers on the previous slide. My point to showing it to you in this manner is to identify anything above the dotted line. Anything above the 24,500 is what the government considers catch-up.

The Spillover Method

It wasn't always this way and that's why it's confusing for people who have been doing catch-up contributions for many, many years because you remember it being structured differently.

But what the government does now, what the TSP looks at is your first $24,500 that you contribute to the TSP is labeled as regular contributions.

Anything above that, the first dollar above that amount, spills over into this catch-up contribution bucket. And as long as you're eligible, it will spill over into that bucket and you are welcome to keep contributing up until the time that you hit the maximum allowable limit given your age.

What's changed?

Well, prior to 2026, employees could freely decide for all their contributions that they were putting into the TSP, did it get deposited on the traditional or the Roth side of their account or some sort of mixture between the two of them.

Employees had full control over that and it didn't matter how much you made, you had total control whether it was traditional or Roth.

But starting in 2026, if an employee made less than 150,000 in 2025, looking backwards into 2025, if they made less than 150,000, the same thing is going to happen just like last year.

They can decide between traditional and Roth contributions and any combination that they wish. But for employees who made 150,000 or more in 2025, any of that spillover, that catch-up contribution, so again, anything above the 24,500 must be deposited into the Roth side of the account.

The government doesn't care. They're not going to look back to say, “Of that 24,500, was any of it Roth?” They're not going to look at the total number at the end and make sure that no more than 24,500 was Roth.

They are going to say, “Whatever you did for the first 24,500, whether it was traditional or Roth, that's that. That happened and we're not even going to look at that. We're going to look at everything above the 24,500 that you contribute.”

That, all of that money has to be Roth. I want to make sure that we're super clear so there's no confusion whatsoever. This specifically affects those people who are contributing a mixture between the traditional and the Roth.

This is probably going to throw your mixture off once you hit that threshold of the 24,500 and start spilling over into the catch-up bucket.

The “High Earner” Standard Lookback Rule

Let's talk about this higher earner standard. This is called a look back rule. For 2026 catch-up contributions, we're going to be looking at the 2025 wages to see did you trip the wire for 150,000 or more.

To do so, we're going to look back at box five of your 2025 W-2 statement. You're going to get a copy of this come tax time and it will have your wages right in there.

Now you're going to have a couple of boxes that look very similar with respect to your earnings, your social security earnings, your Medicare earnings, those types of things, but look specifically to box five because that's the box the IRS is going to be concerned about, and really, your HR department is going to be concerned about because they're the ones who are administering this change alongside the TSP.

I do want to point out, of course the W-2 is your own personal income and that is exactly what the government's looking at for this rule. This is individual income, this is not household income, this has no bearing on anything that your spouse made.

Other income that you have, rental income, you have another job, none of that matters. It is only income from the federal government, in fact only income from positions that are eligible for the TSP.

When this rule first came out from the IRS, this is part of the Secure 2.O Act, when this first came out it referred to FICA earnings, and FICA is a mixture between social security and Medicare.

And so there was I think valid question whether CSRS employees were going to be affected by this. If a CSRS employee was a higher earner, was this going to mess with them at all?

And the answer is it's going to mess with them just like it's going to mess with all the rest of you as FERS employees. CSRS and FERS are going to be treated exactly the same.

This wasn't really clarified until here just recently, and so I'm glad that the TSP made that more obvious because the language in the IRS's code did not align with that language.

And so I'm glad that even though CSRS employees don't pay full FICA tax, that the rules are exactly the same between the two groups.

Financial Implications

Let's talk about some financial implications. The question will be what scenario do you find yourself in? If you're already contributing all of your own contributions into the Roth side of the account, there's going to be absolutely no effect on you. You're already doing it.

You're already agreeing to go ahead and take the tax hit now and pay the tax on the money that you're contributing to the Roth, so that you get the financial reward later of all that tax-free growth.

If you are putting all of your money into the traditional side of TSP, you don't even have a Roth TSP, you're going to have now some new taxable income that you haven't had before, because now some of that, anything above the 24,500 is going to have to go to the Roth side.

And there have been some questions like, well what if I don't have a Roth TSP? Do I need to open one? What do I need to do? All of these things are going to be done for you.

The TSP, if you do not have a Roth side of your account, the TSP will create one. If you trigger, you trip this wire of contributing more than the 24,500 and you're a higher earner.

Next is what happens if you have a mixture of contributions between the traditional and the Roth? The effect that it's going to have on you is going to be largely on the mixture that you have. You just need to remember that anything over the 24,500 is going to Roth.

What it might make you do, if you really want to keep that same mixture, you might decide to make your initial contributions traditional money, and when you get to the point that you know it's going to trip that wire of the 24,500, now everything above that is going to go to Roth, if that's the kind of mixture that you want at the end of the year.

You might have to just rethink how that mixture gets into the account, because if you did 50/50 all these years, you did half of it to Roth and half of it to traditional, that's not going to work anymore if you want to maintain that same balance.

Because once you get to the 24,500, everything from that point is going to be Roth. It's going to make you have a little bit of an imbalanced contribution level for each one of those if in fact that's the kind of spread that you want between the two of them.

You may need to change up how you're doing traditional money more at the beginning of the year until you trip that 24,500 wire that will then go to Roth.

A Special Note for Those Who are Turning Age 64

I do want to make a special note for those of you who are turning 64 this year. Because this new rule of that special catch-up contribution limit just went into effect in 2025, if you are turning 64 in 2026, if you contributed that higher special catch-up amount last year, naturally, that amount is going to continue.

Unless you change it, you're going to stay at that higher contribution amount, which you're not allowed to contribute for 2026. You're going to be too old with respect to these rules.

You're going to want to lower your contribution back to the regular catch-up amount of 8,000 versus the $11,250 that you otherwise could contribute last year.

And I don't have this on the slide, but something that will naturally happen is if you end up maxing out your TSP too early, let's say you're at pay period 20 and you've contributed all the TSP will allow, your personnel office is going to stop your TSP contributions.

You won't be allowed to contribute anymore. And any of those pay periods which you are not contributing to the TSP, so in this example pay period 21 through 26, you are not going to get your match.

How crazy would it be that you have not only contributed the normal amount, you've contributed the catch-up amount, but you did it too early in the year and you missed out on some of the free money from your agency.

Because these contributions have to be made every single pay period for you to get the match for each one of those pay periods. Be sure to spread those bad boys out.

Here's our example. In 2025, Curtis turned 63, he was able to contribute the $24,500 limit and the extra $11,250 in that special catch-up limit that just went into effect last year.

But because he turned 64 in 2026, he is only eligible to contribute $8,000 in the normal catch-up limit for this year, for 2026. He needs to reduce his contributions, and the sooner that he does that, the better with respect to getting the pay periods right with for those TSP contributions.

Change #2 In-Plan Roth Conversion

That was the easiest of the two to describe and so that's why I put that one first. The in-plan Roth conversion is a little bit more complicated. Roth conversions in and of themselves are more complicated and so I wanted to take some time to be able to review this change.

What is a Roth Conversion?

I'm going to start with what a Roth conversion is just so we can get some of the language down. A Roth conversion is a tax strategy. It could be actually a quite sophisticated tax strategy, to take money that is currently categorized as traditional and make it Roth. This happens out in the private sector all the time.

We would take a traditional IRA, we would run it through the Magic Roth conversion machine and it would come out as a Roth account on the other side.

To do a Roth conversion, you must pay the tax today on the amount that you're converting. And if it's a really large amount, you may temporarily at least be in a higher tax bracket.

If you want to convert $300,000 from a traditional to a Roth account, whether it's in the TSP or otherwise, you're going to have to claim $300,000 of income this year, which is quite likely going to put you in a different tax bracket.

You're going to pay an unnecessarily amount of tax that you didn't otherwise have to do. After the conversion takes place, so once you run it through the magic conversion machine, that money from that point forward will grow tax-free.

The slide that I showed where it showed the tax-free money coming out the right side of the account into the future, that is exactly how it will work from that point forward.

It gets a little painful in the middle when you have to pay all the tax, but you're deciding to bite the bullet, do it now, and then you're never having to worry about the tax on that money again.

And like I mentioned, a Roth conversion is most often part of a sophisticated tax strategy, typically done with a financial professional. Roth conversions can be incredibly complicated.

I'm going to share with you some of the questions that people need to ask themselves before thinking through whether a Roth conversion is right for them.

And many of these things start to get pretty complicated and that's why a financial professional who can look at that tax situation, the implications of the long-term tax issues, and be able to provide some recommendations on whether it makes sense and if it does, when does it make sense and how much makes sense to convert.

What Has Changed?

What has changed for 2026? Prior to 2026, the TSP did not allow employees to do Roth conversions inside the TSP. If they wanted to do that, they had to wait until they were at least 59 and a half, or they had to wait until they were separated or retired, and then they had to move their money to a private account.

It would go like traditional TSP to a traditional IRA, and then from the traditional IRA it would get Roth converted from there to a Roth conversion account. That's how it has worked for a very, very long time.

Starting in 2026, the TSP is going to allow this to happen inside the TSP. They call that an in-plan Roth conversion. And it will allow you to change how that traditional account will be taxed in the future by moving it from the traditional side of your account over to the Roth side of your account.

But this is far more complicated than it appears. I tend to try to make things look really simple. This is not simple by any stretch, the paperwork is the easiest part of this.

It's all the tax implications that come out of this and the levers that ended up getting pulled on other parts of your financial life that you might not realize are going to happen until after you've done a conversion.

And so very, very important that you understand the bigger picture here.

Paying the Taxes on the Conversion

Let's talk about paying the taxes on the conversion. The TSP has decided that if you wish to do this conversion, to take some of your traditional TSP and make it Roth TSP, that you have to do that with money outside of the TSP.

Meaning, the money that you pay the tax with has to be money you've already paid taxes on. Think of money that's in your checking account. You've already claimed that as taxable income and it's sitting there.

It can't be from an account like an IRA and it can't come from inside your TSP. It has to be outside of the TSP itself. Now, here's something just shocking to me.

The TSP will not… Because they're not allowing any of the tax to come out of the money that's being converted, they won't withhold any tax from the conversion. You are 100% responsible for paying that to the IRS. You are 100% responsible.

There will be some fine print. There might even be some red bold letters that say, “Hey, don't forget you got to pay the tax on this.” And you're like, “Yeah, yeah, yeah, I know.”

But until you realize the actual dollar amount that you're going to have to pay and understanding that that has to come outside of the TSP with money you've already paid tax on, you might not realize what kind of trouble you're getting yourself into until tax filing comes around the following year and now you are on the hook to pay that amount.

The Great Tax Prediction

When we think of taxes, we like to say the great tax prediction. There's all sorts of things that go into predicting what taxes are going to look like because that's part of deciding, do you want to take money from traditional and make it Roth?

A couple of questions for you. Do you think tax brackets will change in or out of your favor in the future? Do you think your tax obligation will be higher or lower in the future? And how do your tax choices look in the future?

If you have your magic eight-ball and all of those come up with question marks because you just don't really know, I would highly encourage you to talk to a financial professional who can color some of this for you and give you a sense of the trajectory that all of these things are on.

We don't know for sure what taxes are going to look like in the future, but we can certainly look backwards and see some trends and how we help people prepare to have choices of different buckets of money that they can take money from based on how taxes are behaving in a given year.

We have a lot of people that will tell us, “Listen, when I retire I'm going to be in a lower tax bracket. I'm not going to have all my high income that I had while I was working and that's going to be great.”

Yet not so fast. Not so fast. Here's what happens. You take a pay cut from where you are right now as an employee, you take a pay cut to get your pension, all of that is taxable, the vast majority of it is taxable, then you add on top of that social security or the special retirement supplement if you're FERS, that's taxable.

If all of the money that you take out of the TSP is from traditional TSP, that's all taxable, right? You might very well find yourself up back in the same tax bracket that you're in right now. In fact, that happens most of the time.

The question now is do you want to prepare an account out there, either in TSP or outside of TSP, that can grow in a tax-free environment so that you have the choice to take that kind of money versus taxable money?

That's what all of these changes are really all about, the Roth versus the traditional side.

How Tax Brackets Work for 2026 (filed in 2027)

Let's talk about the tax brackets for 2026. The brackets themselves as far as the rates 10, 12, 22, so on, that hasn't changed, but what changes every year is the amount of income that falls within each of those brackets.

And here in the United States we have a progressive tax system, and I don't mean that from a political standpoint, that word can be used in different ways from a politics perspective, but what I mean by a progressive tax situation is for in this case, if we look at say a single earner, we'll just kind of highlight this first column here.

For a person filing single, up until they have $12,400 of income, that is taxed at 10%. The income above the 12,400 all the way up to 50,400 is taxed at 12% and so on. And it keeps going in those chunks.

I don't want you to think that all of the income, like if you are in the 22% tax bracket, if you are on the upper end of that at 105,700, that all of that income is taxed at 22%.

That's not how our tax system works. That progressive tax system means essentially the last dollar that you make, what is the highest percentage that you're paying?

And then what we would be concerned about in a Roth conversion is, if you convert either a lot of money or one that trips you into a new bracket, even though it might not have been a lot of money, it puts you over the edge of a bracket, you may end up paying more than you otherwise should, right?

At a higher percentage of tax than had you maybe spread it out over a few years and not trip that wire.

I put all these on here because I know everyone's going to be curious about what the brackets are and how much, quote, “room” you might have in your bracket to do a Roth conversion. We'll talk a little bit about that.

That is certainly a question that you should be asking yourself alongside a financial professional who can give some guidance there.

The Effect a Roth Conversion has on Medicare Premiums

Let's talk about another unintended consequence of Roth conversions, and that is the effect that a Roth conversion has on your Medicare premiums.

Medicare premiums are based on your modified adjusted gross income called your MAGI, which is taken from your tax return from two years prior.

We'll give an example here in a moment. But a couple of things I want to point out. The first is that your MAGI is going to include income, like your wages from a job, your pension income, all of your normal social security benefits, your first supplement, tax-exempt interest.

You may have some of that if you have rental income, unemployment investment income from accounts like the traditional TSP. Oh, so it's not just your wages that Medicare is looking at to determine how much you have to pay for Part B. They're looking at all of this income.

There are some things that get excluded from the MAGI. Any of you have VA disability payments. If you're receiving child support, workers' comp, investment income from accounts like the Roth TSP or a Roth IRA, those don't count in your MAGI.

But you could imagine, if you do a large Roth conversion, you convert 100,000, 500,000, whatever the number might be, even if you have the money to pay the tax on it, you are now tripping a wire on social security side, and specifically on Medicare's side, and now you're going to have to pay more for Medicare Part B than you otherwise would've had to pay.

The timing of when you do Roth conversions is important. If you're 63 and you think now is a great time to do a Roth conversion, listen, it might very well be the best time you have left to do it.

I don't know the right answer for that for you personally, but it's least part of the conversation that you need to be prepared for that at least for a year, your Medicare premiums are going to be ridiculous.

Your Income Determines Your Part B Medicare Premium

Let me show you what they are. For Medicare Part B, for 2026, I'm showing the premiums per person.

Again, there's a lot going on here. On the left-hand side, you'll see it says, if your 2024 tax return was filed either single, married filing joint or married filing separate in those levels, your premium for Medicare Part B will be on the right.

The standard premium for 2026 is $202 and 90 cents. But you'll see, once you start having these big jumps in your income, and this is joint income if you're married, so we have to think about that piece too, you're now going to be paying a whole lot more than the average person is for Medicare Part B.

Again, it might very well be worth it to you because of what you're able to do with this other account to make traditional now be Roth and have the lifelong benefit of that. But it does need to be part of the equation for you as you're deciding whether a Roth conversion is right for you.

The 5-Year Rule for Roth Earnings (the growth)

We have to talk about two five-year rules with respect to Roth conversions. The first is the five-year rule for Roth earnings. This is on the growth of your account.

Roth earnings, the growth on a Roth account, are not taxed as long as the distribution is what we call qualified. And those earnings become qualified and can come out tax-free to you as long as they meet both of these requirements set by the IRS. This is not TSP's rules, this is the IRS's rules.

The first is, that five years must have passed since January 1st of the calendar year in which you made your very first Roth TSP contribution. If you happen to not have a Roth TSP contribution and the Roth conversion was the first time you had any Roth money in the TSP, that conversion date would be the start.

January 1st of that year, even if you did it in December, January 1st is when they start to count the clock. You also have to be age 59 and a half or have a permanent disability or are deceased, meaning that your beneficiaries end up getting qualified money.

If you don't meet both of these requirements, you are going to pay income tax when you withdraw those Roth monies from your account. Now, I know some of you are thinking, but I heard that if I'm 55 and I retire, I don't have any penalties on my account.

Well, that might be true from your traditional side of your account, but from the Roth side when we're talking about the growth on the account, you must be at least 59 and a half, or have one of these other exclusions, and you had to have five years passed since January 1st of the calendar year in which you first started the Roth TSP.

Very similar rules exist out in the private sector.

This is not unusual, but very, very important that you are cognizant of this. If you think you're going to need that money two years from now, it's probably not good to Roth convert it because you're going to end up paying tax on it and not have any of the benefit that you were hoping for. That's the first five-year rule.

The 5-Year Rule for Roth Conversions

The next five-year rule is for the Roth conversion itself. This is the actual amount that you are converting. Every time you do a Roth conversion inside the TSP, you're going to start a new five-year clock.

And just like before, that clock starts on January 1st of the year in which you did the conversion, even if you did it really late in the year. You did the conversion in December, you still get credit for that whole year.

January 1st, backwards. If you make a withdrawal of that converted money within five years of the date you converted it, you have to pay a 10% early withdrawal penalty to the IRS.

There are some exceptions, but that exception that you all are thinking about, oh, I'm 55 and I'm going to retire, or I'm a law enforcement officer and I can be 50 or any age with 25.

Yeah, no, that doesn't count here. You want to make sure you have enough time to allow this account to bake for at least five years and not touch it.

And remember, this particular five-year rule that we're covering right here only applies to the money that you converted, not any of the growth that's happened on that account, that was the prior five-year rule.

This is just on the principle that you are converting.

Q & A

I love Q&A time, but today we're not going to have the answers for you. I share that with you because there are questions that each of you need to ask yourself and to get some guidance on before you decide to do a Roth conversion.

So I'm going to give you some questions without the answers today because all of them are going to be very unique to you.

Q1: If you're thinking about a Roth conversion inside the TSP, or frankly outside of the TSP, do you have cash now to pay the taxes?

You have to pay it with outside money. If you don't have the money, you can think and wish all you want about Roth conversions, but if you don't have the money to pay the tax, there's nothing you're going to be able to do here.

Q2: Do you expect to be in a lower or higher tax bracket later?

This isn't the deciding factor of whether you do a Roth conversion, but do you believe that your financial situation is still going to be strong in retirement based on all the sources of income that you have.

Q2: Do you think taxes in general, not just yours but in general are going to go up or down in the future?

I'm going to guess the answer to that is yes, they're going to go up and they're going to go down. Which is why having different buckets of money that are taxed differently in retirement, like traditional, like Roth, like accounts that have already been taxed that are taxed along the way.

Right? There's all sorts of different types of money that you can have access to. How many buckets do you want?

Q3: Do you have room in your tax bracket to not trigger paying high taxes unnecessarily?

If you're right at the top of your tax bracket, those brackets that we covered a few slides back, if you trip that wire and go into the next bracket, you are going to be paying that higher percentage on the conversion amount and that still might be worth it to you.

It just depends on your financial situation and why it's so important to be working with a professional to be able to do this.

Q4: Should you convert all or some of your account?

I would even add in there, maybe it's none of it, right? Maybe you've already done some good work on the Roth saving side in TSP and converting doesn't make sense for you.

I don't know the answer to that question, but it's at least a question that you should be asking.

Q5: Should you do a big conversion or a series of several conversions to spread out the tax obligations?

This is a very common strategy amongst financial professionals who do this regularly with their clients as more of a sophisticated tax situation.

And that strategy is if we ultimately want to convert $500,000 of traditional income or a traditional account to a Roth account, we probably shouldn't do that in one single tax year.

We're probably going to spread it out based on where that person is in their bracket and how do we minimize the taxes that we pay throughout that conversion process. So definitely some big questions to ask, but boy, I'm not done.

Q6: Should you do this while you're younger or older?

You might say, “Well, gosh, while I'm still working kind of in the prime of my working years, I'm making so much money, maybe it's better to do it when I retire.” A

nd you might also say, “Uh-oh, if I do it when I'm older, maybe I trigger that Medicare thing.” The IRMA, the income related monthly retirement adjustment amount.

Will doing a Roth conversion trigger higher Medicare premiums? Well, certainly if you're older when you do it will, or you have the potential for it based on how much income you're going to have in your MAGI.

Q7: Do you have enough time before needing the money to benefit from the tax-free growth?

We want to make sure there's at least five years ahead of you, otherwise you're going to trigger the tax requirement anyway, which defeats the purpose of what you're trying to do.

Q8: If you leave your money in the traditional TSP, how will you be affected by required minimum distributions?

This is more a question of, if you don't do a Roth conversion, are there negative effects? All the other ones have kind of been, what are the possible ways you can get yourself in trouble with a Roth conversion?

But this particular question, with respect to required minimum distributions, is if you do nothing, if you just stay in traditional, what's going to be required to come out of your account that's now going to be taxable to you regardless if you need the money or not?

Those are very real problems that people have in retirement, especially those who have done a really good job of saving throughout the years.

Q9: Will a Roth conversion put your spouse in a better or worse situation if you should pass?

There's so much that goes into a Roth conversion, and with respect to the TSP, I appreciate that they're trying to make yet another feature available, but there is so much potential for this to be a complete and utter disaster for people who don't understand all of the little legs and tentacles that go out to all of these other parts of your financial life, to know whether this is a good decision or not.

Here's something that I hope all of you pay attention to as you are reading through some of the TSP material. I know the TSP just sent out a notice yesterday with respect to the Roth conversion feature, and here's what it says on their website.

“There is a lot more to consider before doing a Roth in-plan conversion. You should consult a tax advisor to discuss the advantages and disadvantages specific to your situation.”

Get Professional Help

That is the very best statement I've seen the TSP release on the Roth conversion because this is complicated. This webinar probably hasn't even done justice to how complicated Roth conversions can make someone's life.

Roth conversions can be really amazing when they're done and done properly, but the idea that you can just log into your TSP account and make such a monumental change without understanding the effects is really, really dangerous.

I implore you, get help from a financial professional so that you can understand the tax piece of all of this and get it right. Here in the webinar portal, you can look to the bottom, you will see a link to be introduced to a financial professional in our network.

If you're thinking about this and you want some guidance on what to do, I would highly encourage you to do that to be able to get some help.

Wrap-Up & Next Steps

The two changes for the TSP in 2026 have a huge potential for big tax implications both now and later.

We all know we're going to have to pay the taxes eventually, but how we do it, the manner in which we do it and how much we end up paying is largely in our control, as long as we know the rules of the game.

The rules are complicated, the game is complicated, and that's why working with a financial professional is so helpful. Taxes are a very real concern for retirees.

Taxes and healthcare are two gut-wrenching concerns for retirees and one that causes them to lose a lot of sleep. The more you can get the tax situation under control in your hands and figure that out now, the better off you are going to be later.

And again, seeking help from a financial professional to look at those bigger tax implications will really help you to give proper consideration to all of the crazy little parts that get connected to this, to make sure that this big decision like a Roth conversion is really in your best interest.

And I would offer to you that you deserve to give sincere thought to your tax future and what that situation is going to look like for you, because frankly, avoiding it only makes it worse. It's something that most people don't want to spend the time to try to figure out. It feels way overwhelming.

You don't feel like you have the tools and resources to be able to make it happen, when in fact you have a good outlet to be able to get that kind of help from a financial professional who specializes in working with federal employees and understanding how all these pieces work.

You guys know we hold retirement workshops. Many of you have already been to these workshops and I love that you guys continue to take action. You continue to show up to webinars like this to stay up to date on how these things work.

But if you haven't been to a workshop or it's been a little while, get to one of these workshops. These are in-person training sessions that we hold throughout the country.

These are sponsored sessions, so there's no cost for you to attend. They're open for any federal employee regardless of the agency that you're with.

And we hope that you will be there to be able to get information on all of the benefits, not just TSP and this Roth conversion and the catch-up contributions we've been talking about today, but all of those federal benefits that you need to have your arms wrapped around by the time that you retire.

And here's the best part. After that workshop, one-on-one help is available. If you really feel like in addition to the TSP stuff we've been talking about today that you're thinking, man, there's so much that I need to really get my arms wrapped around and figure out before I go, this may be a great opportunity for you to be able to get your brain around all of those pieces.

And then following that workshop, have that one-on-one help where you can certainly talk about the big topics like Roth conversions and whether that piece makes sense for you.

You can see all of the details of the workshop by going to Fedimpact.com/attend. That is where you'll see all the locations and the dates that are open for registration right now.

Look today, these workshops fill up very quickly and the earlier you sign up, the easier it's going to be for us to be able to accommodate you.

Thank you all so much for joining us. I hope that you'll stay tuned on the newsletter and all of our communications to keep up to date on those benefits and news updates as they come out.

As a reminder, you can find a workshop nearby at Fedimpact.com/attend, and to attend that next webinar, you can go to Fedimpact.com/webinar. Thank you all so much. We'll see you next time.

Hey, thanks for watching. To stay up-to-date on your federal benefits, subscribe to our channel and give a “like” so that you’re sure to see more videos like this one right in your feed—and while you’re here, check out a few of our most popular videos to help you retire with confidence.

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