Roth and traditional: What’s the difference? (Taxes.)

Background of repeated blue words "ROTH TSP TRADITIONAL TSP" and "TSP" in big letters as negative white space in the middle

Roth and traditional:
What's the difference? (Taxes.)

We’re kicking off a series of emails about Roth TSP and traditional TSP to review the choices you have about the tax treatment of your TSP savings. We hope that reviewing this information over the next few months will help you prepare for a couple of big changes coming to Roth TSP in January 2026:

Catch-up contributions must be Roth for participants with income above a certain threshold.
Roth in-plan conversions will allow participants to convert money from a traditional balance to Roth by paying income tax on the conversion amount.

Whether you’re actively employed or separated from service, these messages will cover the basics of Roth and traditional tax treatment, answer common questions we hear from TSP participants, and give you the tools you need to make thoughtful, informed decisions. As we get closer to January, we’ll send you detailed information about the Roth changes that we’re working hard to add to the TSP.

Your TSP balance and the taxes you’ll pay

It’s important to understand the differences between traditional and Roth TSP balances because these differences affect how much you pay in taxes when money goes into each balance and when you withdraw from each balance. Ultimately, your choices about tax treatment affect how much retirement income you’ll have.

The main difference between traditional and Roth TSP money is when you pay taxes:

Traditional (pre-tax) TSP balance: Money in your traditional balance is tax-deferred, which means that it isn’t taxed when it goes in. However, you’ll owe taxes on those contributions and any earnings from investment growth when you withdraw from your traditional balance in retirement.

For example, if you make traditional contributions, those contributions are taken out of your paycheck before taxes, so they don’t count as taxable income for the year. That means you pay less in taxes now and have more take-home pay. When you withdraw that money, you’ll pay taxes at your income tax rate in the year of the withdrawal.

If you’re eligible for Agency/Service Automatic (1%) and Matching Contributions, these contributions also go into your traditional balance.
Roth (after-tax) TSP balance: Money in your Roth balance goes into your account after you pay taxes on it. Because you pay income taxes up front, you can withdraw Roth contributions tax-free in retirement. Earnings from investment growth in your Roth balance can also be withdrawn tax-free if they meet both IRS requirements for “qualified earnings”:
1. it’s been at least five years since January 1 of the year you made your first Roth contribution, and
2. you’re at least age 59½, permanently disabled,^* or deceased.

Choosing between Roth, traditional, or a mix of both

Each type of balance has its advantages. Your choice of tax treatment depends on your financial situation, current marginal tax rate, and expectations of what your future marginal tax rate will be. There’s no one-size-fits-all answer about whether Roth or traditional is better, but here are some things to consider:

Traditional TSP

If you’re contributing to your TSP account, traditional contributions give you a tax break now. For example, if you contribute $1,000 to your traditional TSP balance and your tax rate is 20%, you’ll save $200 in taxes—meaning you take home more of your pay.
Traditional contributions may be a better fit if you expect to be in a lower tax bracket when you withdraw from your TSP account.
Once you reach a certain age and leave federal service, you’ll need to take IRS required minimum distributions (RMDs) from your traditional TSP balance. If you have a large traditional balance and other sources of income, such as a pension, the RMD amount could raise your income tax rate.

Roth TSP

A Roth balance offers tax-free income at withdrawal for Roth contributions and “qualified earnings” (earnings that meet both IRS requirements mentioned earlier). For example, if your earnings are qualified and you withdraw $1,000 of Roth money, you keep the full $1,000 amount—unlike traditional withdrawals, which are taxed.
Putting money into a Roth TSP balance may be a smart choice if you expect to be in a higher tax bracket when you need to withdraw from your account, since qualified withdrawals are tax-free.
A Roth TSP balance isn’t subject to IRS required minimum distributions (RMDs), so you can leave your Roth savings in your TSP account for as long as you want. (This does not apply to beneficiary participant accounts, which have different RMD rules.)
If you’re a member of the uniformed services serving in a combat zone, Roth contributions from tax-exempt pay are never taxed—not when you contribute them or when you withdraw them. “Qualified earnings” that meet both IRS requirements mentioned earlier can also be withdrawn tax-free.

Matching contributions and IRS limits

If you’re eligible for Agency/Service Matching Contributions, any Roth TSP contributions you make are eligible for matching, just like traditional ones. Matching contributions from your agency or service always go into your traditional balance, even if you’re contributing to Roth.

Also, the IRS sets combined limits for how much you can contribute to traditional and Roth TSP each year. If you also contribute to a Roth IRA outside of the TSP, it has a separate limit that doesn’t affect how much you can contribute to your Roth TSP balance.

Understanding these rules can help you stay on track and make the most of your retirement savings.

Thinking about making a change?

You can change the tax treatment of your TSP contributions whenever you want—log in to your agency’s or service’s electronic payroll system to make updates that align with your financial goals.

And remember that starting in 2026, Roth in-plan conversions will allow you to convert money in your traditional TSP balance to a Roth TSP balance. If you’re considering doing a Roth in-plan conversion, we strongly recommend that you consult a tax advisor to start planning how it would affect your taxable income and estimate how much you may need to pay in taxes.

Next up

The next email in this Roth TSP series will go into more depth about which tax treatment may fit with your financial goals. Look for “Choosing the right tax treatment for you” in your inbox soon.

* We cannot certify to the IRS that you meet the IRS definition of disability when your taxes are reported. You must provide the justification to the IRS when you file your taxes.