TSP Contribution Limits and COLA adjustments for 2026 Released

The IRS recently released the TSP contribution limits for 2026 along with a few relevant changes.

A couple of other new rules come into effect in 2026.  The first applies to “high income earners” which are employees with Social Security wages from the prior year that exceed $150,000 (for 2026, indexed for inflation).  High income earners age 50 and above can still make catch-up contributions, but they must go into the TSP Roth (after tax) account.  

A second change will allow TSP participants to make “in-plan” Roth conversions.  This means federal employees will be allowed to convert a portion of their TSP balance into the Roth TSP.  However, there is a catch.  The amount of the TSP balance converted to a Roth is considered taxable income and you may not have taxes withheld from your TSP to pay the taxes.  You must pay the taxes with outside funds.

There are some definite advantages to these in-plan Roth conversions, so long as you can afford to pay the tax with outside funds.

1. You are creating tax diversification, meaning that any funds withdrawn from the TSP balance will be income tax free.  Thus you are creating a bucket of non-taxable money alongside your traditional, taxable TSP bucket of money.  Having both taxable and nontaxable money to withdraw in retirement gives you flexibility to potentially manage your tax bracket in retirement.
2. Since Roth balances are not subject to Required Minimum Distributions, only your taxable TSP balance is used to calculate your RMD, meaning a Roth conversion can help lower your RMDs.

The FERS COLA adjustment for 2026 is 2.0%, effective with January 2026 payments.

The Social Security COLA adjustment for 2026 is 2.8%.