October 15, 2025
💌 Today’s Thing: Federal Thrift Savings Plan — Some More Changes About Managing Retirement Money: Federal Employees Edition
Even during this period of federal government shutdown, there are ancillary entities still at work. In this case, one of them continues to move forward with actions that impact federal employees.
🧾 The deets…clean and quick
The Federal Retirement Thrift Investment Board (FRTIB) published a proposed rule is for Roth In-Plan Conversions in the Federal Register today. The new rule will amend regulations to permit participants in the Thrift Savings Plan (TSP) to convert amounts in their traditional TSP account balances to amounts in their Roth TSP account balances, subject to applicable tax consequences1.
🧾 WHY does this matter to you?
The traditional accounts contain employee contributions of pre-tax dollars from salary, agency matching contributions and any appreciation. The TSP operates like retirement savings plans administered under IRC § 401(k) in the private sector. The FRTIB is a small government agency responsible for stewardship of retirement savings of current and former federal civilian employees and members of the uniformed services (e.g., Public Health Service, National Oceanic and Atmospheric Administration, etc.).
💵 WHAT happens with your money?
An amount converted from a traditional tax-deferred balance to a Roth account would be treated as a distribution from the account holder’s traditional balance, triggering the following events:
Immediate Taxation
The amount converted is taxed as ordinary income in the year of conversion, regardless of the account holder’s age. There is no early withdrawal penalty since the funds remain in a retirement account.
Future Tax-Free Withdrawals:
Once converted, qualified withdrawals from the Roth balance (generally after age 59½ and five years from the conversion) are tax-free, including both contributions and earnings.
🧾 Wrapping it all up
Here are the significant components of the proposed rule: 2
(a) A participant or beneficiary participant may request Roth in-plan conversions, subject to a maximum number of conversion requests per calendar year, as determined by the TSP record keeper.
(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.
📣 If you want to be heard…SPEAK UP!
The FRTIB is taking public comments on the proposed rule until November 14, 2025.
Your voice counts as much as anyone else. If you’ve got thoughts, now’s your chance to be heard. You can submit feedback through Regulations.gov.
Time’s Up! Last chance to file Tax Year 2024 returns
The IRS published a reminder for individuals who filed extensions for tax year 2024 that their tax returns are due by midnight, Wednesday October 15th. Anyone affected must understand that the government shutdown does not affect the tax filing and payment responsibilities of taxpayers. So even if you’re not the person in your family who handles that responsibility, the deadline still applies. The IRS estimates that more than 20 million taxpayers were expected to file tax returns by the extended due date this year.
The agency urges those who have yet to file to consider e-filing their returns. Direct file is an electronic filing option offered on the IRS website, but you must sign up and open an account.
There’s the scoop, everyone! Thanks for taking time to check out this week’s Tax Clarity Newsletter.
The next edition (on a MONDAY!) will be a special report on a new tax-deferred savings option, courtesy of the One Big Beautiful Bill Act.
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References (2)
1 Federal Retirement Thrift Investment Board, Roth In-Plan Conversions, 90 Fed. Reg. 48267 (October 15, 2025), F. Doc. 2025-19538.
2 Ibid, at 48268.
DISCLAIMER: The information in this newsletter is derived from public information, provided for education purposes. It is not provided as a financial advisory service and should be relied upon as such. For advice on a specific tax matter, please consult a tax professional.
