The Tax-Smart Federal Retiree: 12 Strategies to Keep More of What You Earned Part 1

As a federal employee approaching retirement—or already drawing your FERS or CSRS pension—you’re entering one of the most critical tax planning phases of your life. Why?

Because the way your retirement income is taxed—from your pension to your TSP to Social Security—can either chip away at what you’ve earned… or be managed in a way that helps you keep more of it.

At Mission Point Planning, we specialize in helping federal employees and retirees coordinate their tax picture with their retirement income plan. In this two-part series, we’re covering the 12 key things every federal employee should understand about their taxes.

Here’s Part 1, which focuses on your income sources, tax brackets, and Medicare premium risk.

🔎 1. All Retirement Income Is Not Taxed the Same

Your FERS or CSRS pension is taxed as ordinary income—so is any withdrawal from the traditional side of your TSP or IRA. Roth withdrawals, on the other hand, are typically tax-free. Capital gains and qualified dividends may be taxed at lower rates.

This mix matters. By understanding how each income source is taxed, we can create withdrawal strategies that help lower your tax bill and stretch your retirement dollars. For example: Use TSP funds now while your tax bracket is low, then pivot to Roth later.

🔎 2. Adjusted Gross Income (AGI) Is the Real Driver

Your AGI—not your taxable income—is the number that determines:

• Whether you’ll face Medicare IRMAA surcharges
• How much of your Social Security will be taxed
• Your eligibility for certain deductions or credits

We focus on managing your AGI across retirement—especially in years when large withdrawals or one-time events could push you over critical thresholds.

🔎 3. Marginal Tax Rate = What You Pay on the Next Dollar

Many federal retirees underestimate how useful this number can be.

Your marginal tax rate tells us what you’ll pay on just one more dollar of income. If you’re currently in the 12% bracket and we know you’ll hit the 22% bracket when RMDs begin, we might recommend filling that 12% space now—through Roth conversions or strategic IRA withdrawals.

Why? Because it’s smarter to pay 12% now than 22% later.

🔎 4. Your Tax Brackets Are Layered Like a Staircase

Federal retirees often ask, “What bracket am I in?” But the better question is: “How much of my income is in each bracket?”

Your income flows through each bracket level (10%, 12%, 22%, etc.). So even if your top rate is 22%, much of your income may be taxed at lower rates. This gives us a chance to structure income thoughtfully—especially when coordinating your TSP withdrawals with Social Security or your pension.

🔎 5. Your “Bracket Buffer” Is Strategic Planning Gold

Let’s say you’re in the 12% tax bracket, and there’s $10,000 of space before you hit 22%. That “bracket buffer” is valuable.

We often use it to:

• Convert traditional IRA or TSP money into a Roth
• Take extra distributions while tax rates are still low
• Reduce future RMDs by “pre-paying” some taxes

Filling this buffer each year can lead to big tax savings over the long run.

🔎 6. Beware the IRMAA Cliff—It’s Steep and Sudden

IRMAA (Income-Related Monthly Adjustment Amount) increases your Medicare premiums if your Modified AGI crosses certain thresholds. For married couples, that first cliff currently starts at $206,000; for single filers, $103,000.

It’s not gradual—go just $1 over the line, and you could pay hundreds more per month.

We plan ahead to help you avoid these sudden jumps. And if crossing the threshold is worth it (say, for a large Roth conversion), we make sure the benefits outweigh the cost.

📝 Quick Actions to Take Now

If you’re preparing to retire from federal service—or already there—here are three practical steps to take:

✅ 1. Request a Free Tax Observation Report

We’ll analyze your most recent return and provide a custom report showing:

• IRMAA exposure
• Roth conversion windows
• Hidden bracket space
• Withholding adjustments

📬 [Schedule your complimentary report here] or call us at [Phone Number].

✅ 2. Review Your Income Mix

Do you know how much of your income is taxable, tax-deferred, or tax-free? Understanding your income “layers” is the first step to reducing your lifetime tax bill.

✅ 3. Don’t Let IRMAA or RMDs Sneak Up on You

We can model your future income and show you exactly when RMDs will kick in—and how to reduce their impact starting now.

Retirement is about income, not just savings. And taxes are where the rubber meets the road.
Let’s make sure your tax plan supports your federal retirement—today, and for the decades to come.

At Mission Point Planning and Retirement, we specialize in helping Federal Law Enforcement Officers develop a personalized, tax-efficient retirement plan.

📅 Schedule a consultation today to make sure you’re maximizing your benefits and creating the 3 Mission Critical Ingredients for a Successful Federal Retirement Plan.

This material is for informational purposes only and should not be considered tax or financial advice. Consult with a qualified tax professional or financial advisor for guidance on your specific situation.

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.