The Thrift Savings Plan (TSP) is growing and evolving, offering new features and proving its potential for wealth building. Starting in 2026, federal employees and military personnel will gain access to a game-changing feature: Roth conversions. Meanwhile, a surge in the number of TSP millionaires highlights the program’s ability to drive significant retirement savings growth.
Roth Conversions: A New Way to Maximize Tax-Free Growth
Beginning in 2026, TSP participants will be able to convert funds from their traditional accounts into Roth accounts. While you’ll need to pay taxes on the amount you convert, this move could lead to major tax savings down the road. Here’s how it works:
- Traditional Account: Contributions are pre-tax, but all withdrawals (including earnings) are taxed.
- Roth Account: Contributions are made after-tax, but withdrawals and earnings are tax-free if requirements are met.
Roth accounts also offer one big advantage: they’re exempt from Required Minimum Distributions (RMDs), unlike traditional accounts where RMDs begin at age 73. However, keep in mind that employer contributions for FERS participants always go into traditional accounts.
One important note: taxes owed on a Roth conversion must be paid out of pocket. TSP funds cannot be used to cover this tax bill, so you’ll need to plan ahead.
The Rise of TSP Millionaires
2024 has been a banner year for TSP participants, with the number of TSP millionaires reaching record highs. As of September 30, more than 155,000 participants have balances of $1 million or more, up from just under 117,000 at the start of the year.
Here’s how account balances have grown across different tiers:
- $1 Million+ Accounts: Increased by 38,000 in just nine months.
- $750,000–$1 Million: Grew by 14,000, totaling 122,000.
- $500,000–$750,000: Rose by 20,000 to about 245,000.
- $250,000–$500,000: Up by 17,000, reaching 592,000.
For FERS participants, the average account balance is now $192,000—up $16,000 since the start of 2024. These gains have been driven by strong performance in TSP’s stock-based funds.
Why This Matters
With Roth conversions on the horizon and account balances reaching record levels, it’s the perfect time to revisit your retirement strategy. A Roth conversion could help you secure tax-free income in retirement while taking advantage of the TSP’s low fees and diverse investment options.
To make the most of these opportunities, connect with an FRC® trained advisor. A well-informed strategy today could set you up for a more secure retirement tomorrow.
