In 2026, participants in the Thrift Savings Plan (TSP) will have the opportunity to change their traditional investments into Roth status. This announcement was made during the TSP governing board’s meeting in November. Typically, traditional investments utilize pre-tax funds, with both the principal and any earnings taxable upon withdrawal.
Conversely, Roth investments are funded with after-tax money, allowing for tax-free withdrawals, including earnings, if specific conditions are satisfied. Additionally, Roth accounts don’t have mandatory minimum distributions, unlike traditional accounts, which require these distributions starting at age 73. Participants will have the choice between traditional and Roth contributions for their accounts.
However, agency contributions for employees under the Federal Employee Retirement System (FERS) and military personnel will remain in traditional status. Transitioning to Roth would necessitate settling taxes on the traditional balance, as if it were a withdrawal. According to the meeting presentation, these taxes “cannot be covered by TSP assets.”
A recent survey of participants revealed that only 24 percent were aware of Roth conversion and its tax consequences. Meanwhile, 35 percent expressed intent to utilize a Roth conversion option if it were available. By the end of October, the TSP managed $947 billion in investments, with $68 billion classified as Roth.
Current and former federal and military personnel hold nearly 7.2 million accounts, with about 2.7 million reflecting Roth status. This total includes 1.1 million accounts belonging to current or former FERS employees, whose typical Roth balance is approximately $32,000 within an average total balance of about $192,000.
As of now, the TSP’s international fund, referred to as the “I” fund, has officially shifted from using 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. This adjustment increases the I fund’s exposure for its participants, expanding from roughly 55% of non-U.S. market capitalization to 90%.
Roth option available to tsp participants
The complete transition to the new I fund index took effect on October 30, significantly increasing the number of included countries in the I fund.
China and Hong Kong were left out due to potential market instabilities associated with investment regulations on Chinese technology sectors. “Our investment consultant suggested this index transition to better shield our participants from operational risks and complexities,” stated Kim Weaver, FRTIB’s Director of External Affairs. TSP participants will see a slight uptick in contribution limits starting in 2025, as new 401(k) limits were disclosed in early November.
For 2025, the contribution cap will be set at $23,500 for most participants. Those aged 50 and over are permitted to make additional catch-up contributions totaling up to $7,500, allowing a maximum of $31,000 in 2025. Participants between ages 60 and 63 will have an even higher catch-up allowance of $11,250, leading to a total of $34,750.
Once participants reach 64, their catch-up limit will revert to the standard amount allowed for those 50 and older. Throughout 2025, the FRTIB will work on implementing the new Roth in-plan conversion option. This includes refreshing TSP communication materials and ensuring the computer systems accurately generate tax information for the IRS.
Participants will soon have the option to select their preferred method for receiving TSP account statements, either electronically or via U.S. mail. The FRTIB aims to notify all participants registered with an email address when a new quarterly or annual statement is ready. For security purposes, participants will need to log into the My Account portal to view their statements.
Those who opt for mailed statements can adjust their notification preferences by selecting “Manage Communications” in their account profile once logged in. Participants can expect to receive a notification from the FRTIB soon regarding these update changes.
