[Federal Register Volume 91, Number 10 (Thursday, January 15, 2026)]
[Rules and Regulations]
[Pages 1669-1672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-00765]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 91, No. 10 / Thursday, January 15, 2026 /
Rules and Regulations
[[Page 1669]]
FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
5 CFR Parts 1605, 1650, and 1690
RIN 3222-AA00
Roth In-Plan Conversions
AGENCY: Federal Retirement Thrift Investment Board.
ACTION: Final rule.
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SUMMARY: The Federal Retirement Thrift Investment Board (FRTIB) is
amending a regulation to permit participants in the Thrift Savings Plan
(TSP) to convert amounts in their traditional TSP balances to their
Roth TSP balances, subject to applicable tax consequences.
DATES: The effective date is January 28, 2026.
FOR FURTHER INFORMATION CONTACT: For press inquiries: James Kaplan at
(202) 465-5220. For other inquiries: Laurissa Stokes at (202) 942-1645.
SUPPLEMENTARY INFORMATION: The FRTIB administers the TSP, which was
established by the Federal Employees' Retirement System Act of 1986
(FERSA), Public Law 99-335, 100 Stat. 514. The TSP is a retirement
savings plan for Federal civilian employees and members of the
uniformed services. It is similar to cash or deferred arrangements
established for private-sector employees under section 401(k) of the
Internal Revenue Code (26 U.S.C. 401(k)). The provisions of FERSA that
govern the TSP are codified, as amended, largely at 5 U.S.C. 8351 and
8401-80.
I. Background
A Roth in-plan conversion allows a TSP participant to move funds
from a traditional (pre-tax and tax-exempt) balance to a Roth (after-
tax) balance within the TSP. This conversion triggers taxation on the
converted amount but offers the potential for tax-free withdrawals in
retirement. Since Roth TSP contributions were introduced in 2012,
participants have expressed interest in converting traditional balances
to Roth balances within the plan. The 2024 TSP Participant Satisfaction
Survey asked participants about their interest in a Roth in-plan
conversion feature. Thirty-five percent of respondents who were
familiar with Roth contributions replied that they are ``likely'' or
``extremely likely'' to use an in-plan conversion feature if offered in
the TSP. In response, the FRTIB collaborated with its record keeper to
enable these conversions, which require a regulatory amendment.
II. Proposed Rule
On October 15, 2025, the FRTIB published a proposed rule in the
Federal Register (90 FR 48267) to amend 5 CFR part 1650 by adding
Subpart F. This new subpart establishes rules for Roth in-plan
conversions in the TSP.
III. Response to Public Comments
The FRTIB received comments from 36 individuals and entities in
response to the proposed rule regarding Roth in-plan conversions within
the TSP. Overall, commenters supported adding this feature, noting its
potential to increase flexibility in retirement planning for TSP
participants. To organize our response, we have grouped the comments
into four general categories:
In-scope comments addressing the substance of the proposed
rule;
Out-of-scope comments about topics beyond the scope of
this rulemaking;
Comments related to tax liability implications; and
Miscellaneous comments that did not fit neatly into the
other categories.
Before addressing the public comments, we will respond to two
rulemaking petitions received during the comment period. The
petitioners alleged procedural deficiencies under the Regulatory
Flexibility Act, the Paperwork Reduction Act, and the Unfunded Mandates
Reform Act. Specifically, the petitioners claimed the rule would
negatively impact small entities and that the FRTIB failed to comply
with requirements under these Acts to assess such impacts.
Upon review, we find the petitioners' concerns to be unfounded. The
rule applies exclusively to TSP participants and does not impose any
obligations on other entities, including other defined contribution
plans. Additionally, the petition reflects a misunderstanding of the
rule's origin, incorrectly attributing its issuance to the Internal
Revenue Service (IRS) rather than the FRTIB. Accordingly, the FRTIB
denies the petitions. We find no procedural deficiencies in the
rulemaking process.
A. In-Scope Comments
1. Conversion Frequency
Two commenters recommended that the final rule specify the number
of Roth conversions permitted annually, rather than leaving this
determination to the discretion of the TSP record keeper. The FRTIB
agrees with this recommendation and has revised the regulatory text to
allow participants to request up to a maximum of 26 conversions per
calendar year. This limit aligns with the biweekly pay schedule used by
many federal payroll offices and provides participants with regular
opportunities to manage their retirement savings strategy. Participants
may make multiple conversions within a single pay period; the rule does
not restrict them to one conversion per pay period.
2. Eligibility To Request In-Plan Conversions
One commenter asked for clarification regarding who may request a
Roth in-plan conversion. A conversion may be requested by ``a
participant or a beneficiary participant.'' This includes active
participants, separated participants who maintain TSP accounts after
leaving federal service, and surviving spouses of deceased participants
for whom a separate beneficiary participant account has been
established. Non-spouse beneficiaries or alternate payees are not
eligible to request Roth in-plan conversions.
3. Conversion of Tax-Exempt Balances
One commenter recommended that the rule permit Roth conversions of
tax-exempt balances, such as contributions made from combat zone pay,
in addition to pre-tax balances. The term ``traditional balance'', as
defined in the 5 CFR 1690.1, encompasses both tax-exempt balances and
pre-tax balances. Accordingly, the FRTIB confirms that the final rule
authorizes conversions of both tax-exempt balances and pre-tax
balances. These conversions must comply with IRS pro rata requirements,
which mandate that any Roth
[[Page 1670]]
conversion proportionally include tax-exempt and pre-tax amounts based
on their ratio of the total traditional balance.
4. $500 Conversion Minimum
One commenter recommended elimination of the $500 minimum for Roth
in-plan conversions ``[t]o facilitate immediate or automatic
conversions.'' The FRTIB established the $500 minimum to discourage
small, frequent conversions that could increase administrative
complexity and costs, and to promote operational efficiency. A minimum
threshold ensures that conversions are substantive and mitigates
potential burdens on the TSP's recordkeeping system. The $500 amount
was selected as a reasonable balance between flexibility for
participants and operational considerations for the TSP record keeper.
Accordingly, the final rule retains the $500 conversion minimum.
5. $500 Minimum Balance
Four commenters objected to the provision requiring participants to
retain $500 in each balance type with payroll contributions. This
requirement is designed to mitigate the impact of payroll errors and
corrections, which are typically small and often under $500. For
example, if a payroll office mistakenly deposits funds into the wrong
balance, having a buffer in place ensures that those errors can be
easily corrected without creating negative balances or operational
complications. Accordingly, the final rule retains the requirement that
participants keep at least $500 in each of their tax-deferred employee
contribution, tax-exempt contribution, agency automatic (1%)
contribution, and agency matching contribution balances when requesting
a Roth conversion.
6. Automatic Conversion Tool
Two commenters suggested implementing a tool that would
automatically convert traditional balances to Roth balances once the
traditional balance reaches a certain threshold amount. While the FRTIB
understands the appeal of automation, Roth in-plan conversions carry
significant tax implications. To ensure participants make informed and
deliberate decisions, the FRTIB will not implement automatic
conversions.
B. Out-of-Scope Comments
Several comments offered valuable perspectives on TSP participant
preferences and concerns. Although these suggestions are beyond scope
of this rulemaking, the FRTIB will consider them as part of its ongoing
evaluation of TSP features and efforts to address participant needs.
1. Different Investment Allocations for Roth and Traditional Balances
Fifteen commenters requested the ability to allocate Roth and
traditional balances to different TSP funds. While the FRTIB
understands the rationale for these requests in light of common
financial planning strategies, implementing such functionality would
require extensive modifications to the TSP's recordkeeping and
investment systems. These changes would involve significant
programming, testing, and operational adjustments, resulting in
increased complexity and costs for all participants. Because these
modifications are beyond the scope of this rulemaking, they are not
addressed in the final regulation.
Similarly, one commenter expressed concern that investment
allocations are shown for traditional and Roth balances in the
aggregate and not as separate balances, on participant statements and
My Account, and therefore participants are prevented from determining
the allocation of specific fund holdings of those balances. The TSP's
investment and recordkeeping systems are designed to apply a single
investment allocation across the entirety of a participant's account
regardless of tax treatment. Allowing separate allocations for
traditional and Roth balances would require fundamental changes to
these systems and are beyond the scope of this rulemaking. However,
participants can easily determine the allocation themselves since the
system applies allocations proportionally across all balances.
2. Designation of Agency Contributions as Roth
Four commenters suggested allowing agency automatic and matching
contributions to be designated as Roth contributions, as permitted
under section 604 of the SECURE Act 2.0. While the FRTIB recognizes the
reasoning behind these requests, this rulemaking is narrowly focused on
permitting participants to convert existing traditional balances to
Roth balances. The FRTIB will consider this suggestion as a potential
future enhancement.
3. Fund-Specific Withdrawals
One commenter suggested allowing participants to choose which TSP
funds their withdrawals come from, rather than having withdrawals
applied proportionally across all funds. This issue pertains to the
broader withdrawal mechanics of the TSP and is, therefore, outside the
scope of this rulemaking.
4. Voluntary After-Tax Contributions
Eight commenters recommended permitting voluntary after-tax
contributions in addition to Roth and traditional contributions. The
TSP is governed by FERSA, which only authorizes Roth and traditional
contributions. Implementing voluntary after-tax contributions would
require an amendment to FERSA by Congress. Because this statutory
authority does not currently exist and this topic is beyond the scope
of this rulemaking, the final regulation does not address this request.
C. Tax Liability
Several commenters made suggestions related to the tax implications
of Roth in-plan conversions, which we address below. The FRTIB does not
have authority to alter the tax consequences of Roth in-plan
conversions or to determine the methods available for paying tax
obligations. These tax implications are governed by section 402A of the
Internal Revenue Code. Such matters fall under the jurisdiction of the
Internal Revenue Service and cannot be addressed through FRTIB
regulations. However, the FRTIB recognizes the importance of providing
clear communication to help participants understand the tax
consequences of their decisions.
1. Education on Tax Liability
Commenters emphasized the need for clear guidance on the tax
consequences of converting traditional TSP balances to Roth and the
ways in which participants can pay for the income tax due as a result
of the conversion. The FRTIB agrees that education is essential and is
actively developing participant communications to explain the tax
implications, including that converted amounts are subject to federal
income tax and must be paid using personal funds from another source,
such as a savings account. These materials will be made available on
the TSP website and through other participant outreach channels.
2. Estimating Tax Obligations
Commenters requested tools to help participants estimate their
federal, state, and local tax liabilities resulting from conversions.
The FRTIB is developing a calculator that will allow participants to
model the estimated tax effect of their conversions. This tool will be
available prior to the implementation of the Roth in-plan conversion
feature.
[[Page 1671]]
3. Paying Income Taxes on Converted Amounts
Three commenters suggested that the final rule permit withholding
or specify the withholding rates for taxable converted amounts. The
FRTIB cannot adopt these suggestions because, under IRS guidance, no
withholding applies to a Roth in-plan conversion of an otherwise
nondistributable amount, and no part of the conversion may be withheld
voluntarily pursuant to 26 U.S.C. 3402(p). Therefore, participants must
use personal funds from another source, such as a savings account, to
satisfy their tax obligations.
D. Miscellaneous
Several commenters raised questions and suggestions that fall into
a miscellaneous category. These comments touched on operational
clarity, participant communications, and procedural transparency. In
response, the FRTIB has adopted one commenter's suggestion and offers
the following clarifications.
1. Notices
Commenters stated the rule should require the TSP record keeper to
provide participants with clear written notice of the tax consequences
of a Roth in-plan conversion, and that participants acknowledge receipt
of such notice before the conversion is executed. The FRTIB agrees that
participant education is essential. Accordingly, the TSP will provide
comprehensive communications, including web content, notices, and
interactive tools explaining the tax implications of conversions. We
will also require participants to acknowledge receipt and understanding
of such communications prior to completing a Roth in-plan conversion.
While the FRTIB agrees that providing clear information about the
tax consequences of Roth conversions is essential, we do not believe it
is appropriate to include this requirement in the regulatory text
because section 402(f) of the Internal Revenue Code and IRS regulations
already govern the obligation of retirement plans to provide notice to
plan participants of tax consequences of certain transactions. The
FRTIB will ensure compliance with section 402(f) of the Internal
Revenue Code and related IRS guidance.
2. Explanation of Conversion Denials
One commenter recommended requiring the TSP record keeper to (1)
provide a written explanation when a conversion request is denied, (2)
identify the corrective actions needed, and (3) set a clear timeline
and procedure for appeals. The FRTIB has adopted this recommendation in
part. Newly added paragraph (g) requires the TSP record keeper to
promptly notify the requestor if their Roth in-plan conversion request
is denied. However, the rule does not prescribe the format of the
notice, allowing flexibility as transaction methods evolve. Initially,
conversions will be processed online only. Notice of ineligibility for
a Roth in-plan conversion will be prominently displayed, in real time,
on the screen. To determine corrective actions needed, participants may
be required to call the ThriftLine. The timeline and procedure for
appeals are set forth in 5 CFR 1605.22.
3. Required Minimum Distributions (RMDs)
A commenter asked whether Roth conversions can be processed in
years in which participants are subject to RMDs. The FRTIB clarifies
that conversions may occur in such years; however, the RMD must be
satisfied in full before any conversion is processed. This ensures
compliance with IRS rules prohibiting the conversion of RMD amounts.
4. Roth Character of Converted Balances
A commenter suggested FRTIB regulations should state whether
converted Roth balances retain their Roth character for purposes of
rollovers requested after conversion. Rules that determine tax
treatment of distributions after conversion are established under the
Internal Revenue Code and enforced by the IRS. Because these
requirements fall under IRS authority, they are not incorporated into
FRTIB regulations.
IV. Non-Substantive Conforming Amendments
The final rule adds a definition of the term Roth in-plan
conversion. The definition references 26 U.S.C. 402A(c)(4) to ensure
consistency with the Internal Revenue Code, which governs the tax
treatment of such conversions. By directly incorporating the statutory
reference, the regulation avoids ambiguity and reduces the risk of
conflicting interpretations.
The final rule also replaces all instances of the term ``Roth
initiation date'' in 5 CFR part 1600 with the term ``Roth begin date''
to align with terminology now used in communications and educational
materials provided to TSP participants.
Regulatory Flexibility Act
This final regulation will not have a significant economic impact
on a substantial number of small entities. This regulation will affect
Federal employees and members of the uniformed services who participate
in the TSP and who choose to convert their traditional balance to a
Roth balance within the TSP.
Paperwork Reduction Act
This final regulation does not require additional reporting under
the criteria of the Paperwork Reduction Act.
Unfunded Mandates Reform Act of 1995
Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 602,
632, 653, and 1501-1571, the effects of this regulation on State,
local, and Tribal governments and the private sector have been
assessed. This regulation will not compel the expenditure in any one
year of $100 million or more by State, local, and Tribal governments,
in the aggregate, or by the private sector. Therefore, a statement
under 2 U.S.C. 1532 is not required.
Submission to Congress and the Government Accountability Office
Pursuant to 5 U.S.C. 801(a)(1)(A), the FRTIB submitted a report
containing this rule and other required information to the U.S. Senate,
the U.S. House of Representatives, and the Government Accountability
Office before publication of this rule in the Federal Register. This
rule is not a major rule as defined at 5 U.S.C. 804(2).
List of Subjects
5 CFR Part 1605
Claims, Government employees, Pensions, Retirement.
5 CFR Part 1650
Alimony, Claims, Government employees, Pensions, Retirement.
5 CFR Part 1690
Government employees, Pensions, Retirement.
Ravindra Deo,
Executive Director, Federal Retirement Thrift Investment Board.
For the reasons stated in the preamble, the FRTIB amends 5 CFR
parts 1605, 1650, and 1690 as follows:
PART 1605--CORRECTION OF ADMINISTRATIVE ERRORS
0
1. The authority citation for part 1605 continues to read as follows:
Authority: 5 U.S.C. 8351, 8432a, 8432d, 8474(b)(5) and (c)(1).
Subpart B also issued under section 1043(b) of Public Law 104-106,
110 Stat. 186 and Sec. 7202(m)(2) of Public Law 101-508, 104 Stat.
1388.
[[Page 1672]]
Sec. Sec. 1605.11, 1605.15, 1605.17 [Amended]
0
2. Amend Sec. Sec. 1605.11(c)(13), 1605.15(d), and 1605.17(c)(1) by
removing the words ``Roth initiation date'' and adding, in their place,
the words ``Roth begin date.''
PART 1650--METHODS OF WITHDRAWING FUNDS FROM THE THRIFT SAVINGS
PLAN
0
3. The authority citation for part 1650 continues to read as follows:
Authority: 5 U.S.C. 8351, 8432d, 8433, 8434, 8435, 8474(b)(5)
and 8474(c)(1).
Subpart A--General
0
4. Amend Sec. 1650.1(b) by adding, in alphabetical order, the
definition for ``Roth in-plan conversion'' to read as follows:
Sec. 1650.1 Definitions.
* * * * *
(b) * * *
Roth in-plan conversion means a taxable rollover to a designated
Roth account as stated in 26 U.S.C. 402A(c)(4).
* * * * *
Sec. 1650.25 [Amended]
0
5. Amend Sec. 1650.25(c) by removing the words ``Roth initiation
date'' and adding, in their place, the words ``Roth begin date''.
0
6. Amend part 1650 by adding subpart F to read as follows:
Subpart F--Roth In-Plan Conversions
Sec. 1650.60 Eligibility and general rules for Roth in-plan
conversions.
(a) A participant or beneficiary participant may request up to a
maximum of 26 Roth in-plan conversions per calendar year.
(b) To be eligible for a Roth in-plan conversion, the participant
or beneficiary participant must have a vested account balance of at
least $500 at the time of the request.
(c) The total amount of a conversion request must be at least $500.
(d) Participants must retain at least $500 in each of their tax-
deferred employee contribution, tax-exempt contribution, agency
automatic (1%) contribution, and agency matching contribution balances.
(e) Amounts invested in the Mutual Fund Window cannot be converted
unless those amounts are first transferred back into one or more of the
TSP core funds.
(f) Administrative holds placed pursuant to Sec. 1690.15 will
restrict an individual from requesting a Roth in-plan conversion.
(g) The TSP record keeper shall promptly notify the participant or
beneficiary participant if their Roth in-plan conversion request is
denied.
PART 1690--THRIFT SAVINGS PLAN
0
7. The authority citation for part 1690 continues to read as follows:
Authority: 5 U.S.C. 8474.
Sec. 1690.1 Definitions.
0
8. Amend Sec. 1690.1 by removing the definition for ``Roth initiation
date'' and adding, in alphabetical order, the definition for ``Roth
begin date'' to read as follows:
* * * * *
Roth begin date means
(1) The earlier of:
(i) The actual date of a participant's first Roth contribution to
the TSP;
(ii) The ``as of'' date or attributable pay date (as defined in
Sec. 1605.1 of this subchapter) that established the date of the
participant's first Roth contribution to the TSP; or
(iii) The date used, by a plan from which the participant directly
rolled over Roth money into the TSP, to measure the participant's Roth
5 year non-exclusion period.
(2) If a participant has a civilian account and a uniformed
services account, the Roth initiation date for both accounts will be
the same.
* * * * *
[FR Doc. 2026-00765 Filed 1-14-26; 8:45 am]
BILLING CODE 6760-01-P