Five Things Federal Employees Should Check This Summer
Most federal employees check in on their finances twice a year. Tax season, because they have to. Open Season, because the deadline forces it. Everything in between runs on autopilot.
Summer is easy to fill with vacations and long weekends, so it's understandable that finances aren't top of mind. But it also happens to be one of the most useful stretches of the entire year. April is behind you. December isn't bearing down yet. There's still enough time left to catch something and fix it, instead of discovering it after the fact.
This list is aimed mainly at federal retirees and people who've separated from federal service in the last couple of years, since most of these checks involve income that's already in motion — a pension, TSP distributions, estimated payments. If you're still working and more than a few years from retirement, the item most likely to apply to you right now is the Roth conversion check. The rest are worth bookmarking for when you're closer to that transition. Either way, here are five things worth twenty minutes of your time before fall.
1. Check Your Withholding
Pull a recent pension statement (or pay stub, if you're still working) and compare what's been withheld so far this year against what you actually expect to owe.
This matters more for federal retirees than people realize. A FERS pension is fully taxable. Add TSP distributions and Social Security, and the total often lands you in a different bracket than your withholding assumed. It's also worth remembering that TSP does not withhold state taxes, so that gap has to be accounted for separately. Catching a shortfall in July means a small adjustment. Catching it in April means a bill you weren't expecting.
2. Look at Your TSP Distribution Plan
If you're already taking distributions, are they sized to keep you in the tax bracket you're If you're already taking distributions, are they sized to keep you in the tax bracket you're aiming for? It's easy to set a withdrawal amount once and never revisit it, even as your other income sources change.
If you're not taking distributions yet, take a look at where your balance is heading. A TSP that's grown significantly can create real pressure once Required Minimum Distributions (RMDs) start. Knowing that now gives you time to plan around it instead of reacting to it later.
3. Consider Whether This Is a Roth Conversion Year
Roth conversions work best in lower-income years. If you separated from federal service recently, retired earlier than planned, or simply had a quieter income year for any reason, this might be one of those windows.
There's something a little counterintuitive about voluntarily paying tax you don't technically owe yet. Most people spend their career trying to minimize what they owe the IRS each year, so choosing to convert now, on money you could otherwise leave alone, doesn't always feel natural, even when it works out well over time. That's part of why a good conversion year can quietly pass by unused: it takes a shift in thinking to see paying a bit of tax now as a step toward paying less later.
This isn't a decision to make alone. The right amount to convert depends on your full income picture for the year, and converting too much can do more harm than good.
4. Confirm Your September Estimated Tax Payment
If you pay quarterly estimated taxes, which many federal retirees with pension and TSP income do, the third payment of the year is due September 15.
A summer review gives you time to catch a shortfall before that deadline instead of scrambling in early September or paying a penalty for underpayment. If the shortfall is coming from your regular income sources, this is also a good moment to revisit withholding on your pension, TSP, or other income so the same issue doesn't continue to come up.
5. Talk to Someone Who Sees the Whole Picture
Not just the investments, and not just the tax return, but someone who understands how each piece of your financial life affects the others.
Many financial surprises don't come from bad decisions. They come from reasonable decisions made by different people who never compared notes with each other. A withdrawal that made sense to a financial planner can create a tax problem the CPA only discovers in April.
Summer is the Time
Taking some time in these slower months for a mid-year check-in is a great way to ease stress before it builds. None of this takes long: a pension or pay stub comparison, a look at your TSP balance, a quick check on whether this year is a good one for a conversion. Everything on this list is something you can still act on right now. Wait until April, and most of these decisions have already been made for you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA
Neil Cain is a certified financial planner with Capital Financial Planners. If you don’t feel confident in your current or future retirement withdrawal strategy and would like feedback, you can register for a complimentary Retirement Readiness Meeting. For topics covered in even greater depth, see our YouTube page.
