Roth or Traditional TSP for Service Members: 2026 Limits and Combat Zone Pay
The Thrift Savings Plan lets a service member pay income tax on contributions now (Roth) or later (traditional), and combat zone pay adds rules that change both the tax result and the contribution limits. This guide covers the 2026 limits, tax-exempt contributions, Roth in-plan conversions, the Roth catch-up rule and withdrawal taxes, with one invented deployed member.
How traditional and Roth contributions are taxed
A member decides when income tax is paid on the money going in: when it is earned and contributed, or when it is withdrawn. A member can choose traditional, Roth, or some of each. The TSP keeps the two balances separate for tax purposes.
With traditional contributions, the money goes into the TSP before tax withholding. Withdrawals from the traditional balance are taxed on both contributions and earnings at the income tax rate of the year of the withdrawal. The TSP tax rules booklet adds that any payment from the traditional balance is taxable income, including the member's contributions, agency or service contributions and earnings.
With Roth contributions, the money is part of taxable income for the year it is contributed, and the usual withholding applies. The portion of a withdrawal made up of Roth contributions is never taxed, but a Roth payment is pro rata: it includes contributions and earnings in the same proportion as they sit in the Roth balance, and a Roth payment cannot be limited to contributions alone (TSP booklet). A member can direct a withdrawal from the traditional balance only, the Roth balance only, or both in proportion. Earnings are tax free only if they are "qualified," which requires both that 5 years have passed since January 1 of the calendar year of the first Roth TSP contribution and that the person is at least age 59½, permanently disabled or deceased. The Roth balance is not subject to required minimum distributions. A Roth in-plan conversion counts as the first Roth contribution when the 5-year test is applied, and each conversion starts its own five-year clock for the 10 percent early withdrawal penalty.
| Feature | Traditional TSP | Roth TSP |
|---|---|---|
| Tax on the money going in | Contributed before tax withholding | Part of taxable income in the year contributed |
| Tax on withdrawal of contributions | Taxed at the rate of the year of withdrawal | Not taxed |
| Tax on earnings | Taxed on withdrawal | Not taxed if qualified (5-year test and age 59½, disability or death) |
| Where agency or service contributions go | Always the traditional balance | Never the Roth balance |
2026 contribution limits
The IRS announced that the 2026 limit on employee contributions to 401(k), 403(b), governmental 457 plans and the federal Thrift Savings Plan is $24,500, up from $23,500 for 2025. The catch-up limit for participants aged 50 and over rose to $8,000 from $7,500, and the higher catch-up limit for ages 60, 61, 62 and 63 remains $11,250. The IRS COLA table lists a defined contribution plan limit of $72,000 for 2026, up from $70,000 for 2025.
| Limit | 2026 amount | Notes |
|---|---|---|
| Elective deferral | $24,500 | Applies to the combined total of traditional and Roth contributions; matching contributions are not included |
| Catch-up, age 50 and over | $8,000 | Extra contributions once the elective deferral limit or annual additions limit is reached |
| Catch-up, ages 60 to 63 | $11,250 | Returns to the regular catch-up amount in the year the member turns 64 |
| Annual additions (defined contribution plan limit) | $72,000 | Per employer; counts all sources; does not include catch-up contributions |
The catch-up amount depends on birth year: $8,000 for 1962 or earlier, $11,250 for 1963 through 1966, and $8,000 for 1967 through 1976. The IRS says participants aged 50 and over in most of these plans, including the TSP, can generally contribute up to $32,500 each year starting in 2026.
The annual additions limit counts employee contributions (tax-deferred, after-tax and tax-exempt), the Agency/Service Automatic (1%) Contributions and the Agency/Service Matching Contributions.
Agency and service contributions
If a member is eligible for Agency/Service Automatic (1%) or Matching Contributions, all of the member's own contributions are eligible for matching, whether designated traditional or Roth. All agency and service contributions go into the traditional balance regardless of how the member designates personal contributions. The TSP contribution limits page says catch-up contributions can qualify for the match up to 5 percent of salary, and adds a note for BRS participants: catch-up contributions made after reaching the annual additions limit are allowed but are not matched.
Combat zone pay and the limits
Tax-exempt pay earned in a combat zone can go into the TSP, and it must be designated traditional or Roth like any other contribution. The two choices are handled differently under the limits.
| Tax-exempt contribution goes to | Tax when contributed | Counts against the elective deferral limit? | Tax when withdrawn |
|---|---|---|---|
| Traditional balance | None | No | The contribution is never taxed; the earnings are taxed like other traditional money |
| Roth balance | None | Yes | The contribution is never taxed; qualified earnings are tax free |
The elective deferral limit applies to the combined traditional and Roth total, but for uniformed services members it does not apply to traditional contributions from combat zone pay. The annual additions limit mainly affects uniformed services members who can exceed the elective deferral limit, because the excess goes into the traditional portion of the account from tax-exempt combat zone pay.
The same difference creates a trade-off. Tax-exempt contributions to a Roth balance count against the elective deferral limit and traditional ones do not. If the limit is reached before the year is out, contributions must stop and Agency/Service Matching Contributions for the remaining months are missed. The worked example below shows the arithmetic.
Catch-up contributions and the $150,000 rule
Two separate catch-up rules apply to Roth treatment. The first is the new rule starting January 1, 2026. Under it, a participant aged 50 or older who earned more than the IRS income threshold ($150,000 in 2025 wages, adjusted annually for inflation) and whose total contributions exceed the elective deferral limit must make the extra contributions, the catch-up contributions, as Roth. The TSP says the switch happens automatically for most people. The rule does not apply if 2025 wages were $150,000 or below or if the person is in a position that is not TSP eligible.
The second rule is specific to combat zone pay. For uniformed services members who earn tax-exempt pay in a combat zone, any catch-up contributions have to be Roth, regardless of income. The TSP adds that traditional tax-exempt money cannot be used for this, and that the contributions cannot come from incentive, special or bonus pay.
Roth in-plan conversions from January 2026
As of January 2026, the TSP allows money in the traditional (pre-tax) balance to be converted to the Roth (after-tax) balance. The converted amount becomes taxable income for the year. The tax must be paid from personal funds from another source, such as a savings account, because part of the converted amount cannot be used to pay it. Tax-exempt contributions converted this way join the rest of the Roth balance with no separate category (TSP booklet). Each conversion starts its own five-year clock for the early withdrawal penalty.
How combat zone money is taxed on the way out
Publication 3 says a distribution from the Uniformed Services Traditional TSP is generally included in taxable income unless the contributions included tax-exempt combat zone pay. In that case the part of the distribution attributable to those contributions is tax exempt, but the earnings on the tax-exempt portion are taxable. The TSP provides a statement showing both portions. The TSP booklet adds that any withdrawal carries the same percentage of tax-exempt pay that is in the traditional balance.
For the Roth balance, the booklet says tax-exempt contributions are mixed in with other Roth contributions and are never taxed. Earnings on them are taxed only if they do not meet the IRS requirements to be qualified. When a payment includes both traditional and Roth money, the traditional rules apply to the traditional portion and the Roth rules to the Roth portion.
The early withdrawal penalty exception
The booklet says the 10 percent early withdrawal penalty tax does not apply to any portion of a TSP distribution, including a taxed or foreclosed loan, that represents tax-exempt contributions from pay earned in a combat zone. For Roth payments, tax-exempt contributions are never subject to that penalty. The booklet also says a reservist called to duty for more than 179 days may be eligible for relief from the 10 percent penalty, provided the TSP distribution was received between the date of the order or call and the close of the active duty period. The reservist may also be eligible to repay the distribution to an IRA, not to the TSP.
Worked example: a deployed member in 2026
The member below, Sergeant Dana Ortiz, is invented, as are all the amounts, and the example illustrates the rules rather than any real payroll. Assume Ortiz is a BRS member under age 50, so no catch-up applies, and earns $4,000 a month in basic pay ($48,000 for the year). Ortiz is not deployed in January through May, then is deployed to a combat zone for June through December (7 months). Enlisted basic pay earned in a combat zone is excluded from income, so Ortiz has taxable pay only in the 5 months before deployment. Ortiz contributes $1,500 a month from that taxable pay (5 x $1,500 = $7,500) and $3,000 a month from tax-exempt pay while deployed (7 x $3,000 = $21,000). The $7,500 could be traditional or Roth; either counts toward the elective deferral limit. The Agency/Service Automatic (1%) Contribution is 1 percent of basic pay. The TSP describes a full 5 percent match for BRS members (cited on its contributions pages); this example assumes that is the 1 percent automatic contribution plus a 4 percent match, that Ortiz is already past any service-length wait for the match, and that the match is earned on every month's pay. Ortiz contributes more than 5 percent of $4,000, or $200, each month. The match is 4% x $4,000 = $160 a month.
| Line (Case 1: tax-exempt money goes to the traditional balance) | Arithmetic | Amount |
|---|---|---|
| Contributions from taxable pay (January to May) | $1,500 x 5 | $7,500 |
| Contributions from tax-exempt pay (June to December) | $3,000 x 7 | $21,000 |
| Automatic (1%) contribution | 1% x $48,000 | $480 |
| Matching contribution | $160 x 12 | $1,920 |
| Annual additions total | $7,500 + $21,000 + $480 + $1,920 | $30,900 |
| Room under the $72,000 annual additions limit | $72,000 - $30,900 | $41,100 |
| Room under the $24,500 elective deferral limit | $24,500 - $7,500 (tax-exempt traditional money is not counted) | $17,000 |
Case 2: the same $3,000 a month goes to the Roth balance, so it counts against the elective deferral limit. Contributions reach $7,500 by May, then grow $3,000 a month to $22,500 after October. In November only $24,500 - $22,500 = $2,000 fits, and nothing fits in December. The intended total of $7,500 + $21,000 = $28,500 is $4,000 more than the limit, so $24,500 is all that can go in. Because contributions stop in December, the December match of $160 is missed, leaving $1,920 - $160 = $1,760 of matching. The Automatic (1%) contribution stays at $480. The annual additions total becomes $24,500 + $480 + $1,760 = $26,740, which leaves $72,000 - $26,740 = $45,260 of room under that limit.
Later distribution: suppose Case 1 applies and the traditional balance later stands at $105,000, of which $21,000 is tax-exempt contributions: $21,000 / $105,000 = 20 percent. A $5,000 withdrawal carries 20 percent x $5,000 = $1,000 that is tax exempt and $5,000 - $1,000 = $4,000 that is taxable.
Limits of this guide
- It does not say whether Roth or traditional suits a particular member or predict future tax rates.
- State income tax treatment of TSP payments differs by state; ask the state tax agency, and see the guide on state taxes and drill pay.
- The example assumes a BRS member, the full match and a contribution stop in the month the limit is reached; real timing and match rules may differ.
- How wages are measured for the $150,000 test is not defined on the TSP pages cited here; the payroll office can say.
- Whether a specific distribution qualifies for reservist penalty relief is a question for the IRS or a tax advisor.
Sources
- TSP contribution limits
- TSP traditional and Roth contributions
- TSP booklet, Tax Rules about TSP Payments
- IRS announcement of 2026 retirement plan limits
- IRS cost-of-living adjustments for contribution limits
- IRS Publication 3, Armed Forces' Tax Guide
Related guides
- The combat zone exclusion: how tax-exempt pay is defined.
- Taxable and tax-free military pay: which pay is included in income.
- Other tax breaks: benefits beyond retirement savings.
- State taxes and drill pay: residence and domicile questions.