The Thrift Savings Plan (TSP) continues to evolve, delivering strong growth for participants and introducing new features to enhance retirement savings. In 2024, the program celebrated a significant rise in TSP millionaires, reflecting its potential for wealth accumulation. Looking ahead, the introduction of Roth conversion options in 2026 promises even greater flexibility for participants.
The Rising Tide of TSP Millionaires
The number of TSP participants with account balances exceeding $1 million has reached a new high in 2024. From under 117,000 at the start of the year, the count surged to over 155,000 by the end of September, fueled by strong market returns in stock-based TSP funds.
- TSP Millionaires: Now exceed 155,000, representing about 2% of the 7.1 million account holders.
- Accounts with $750,000–$1 Million: Increased by 14,000 to approximately 122,000.
- Accounts with $500,000–$750,000: Gained 20,000, reaching around 245,000.
- Accounts with $250,000–$500,000: Grew by 17,000 to about 592,000.
Average account balances have also climbed. By October 2024, FERS participants averaged $192,000 per account—a $16,000 increase since January.
Roth Conversions: A Gateway to Tax-Free Growth
Starting in 2026, TSP participants will have the option to convert traditional account balances into Roth accounts. This feature provides enhanced tax planning flexibility by allowing taxes to be paid upfront on converted amounts, ensuring future withdrawals and earnings are tax-free (if Roth requirements are met). Participants should note that taxes owed on the conversion must be paid out-of-pocket, as TSP funds cannot be used for this purpose.
Here’s a summary of TSP account types:
- Traditional TSP: Contributions are pre-tax, but withdrawals (including earnings) are taxed.
- Roth TSP: Contributions are after-tax, and qualified withdrawals (and earnings) are tax-free.
Roth accounts offer an additional advantage: they are exempt from required minimum distributions (RMDs), unlike traditional accounts, where RMDs start at age 73. However, FERS agency contributions are always deposited into traditional accounts.
Preparing for the Future
With TSP balances reaching record highs and the upcoming Roth conversion option, now is the ideal time to reassess your retirement strategy. Consulting with a qualified financial advisor, such as an FRC® professional, can help you maximize these opportunities and build a secure financial future.
