The $60,000 Question: How Fed Retirees can Fund Big Expenses Without Wrecking Your Tax Plan
🧰 What a former federal agent’s home project taught us about tax-efficient withdrawals.
Retirement should be about enjoying your lifetime of savings with the confidence and clarity—but even in retirement, big expenses, unplanned expenses don’t just go away. In fact, sometimes they show up all at once. For one of our longtime federal clients, a series of major home improvements—new windows, flooring, and a rebuilt deck—added up to more than $60,000 in upcoming costs. And while the projects made sense for his long-term comfort, the timing raised an important financial question:
How do you fund large retirement expenses without blowing up your tax plan?
The Hidden Cost of a Big IRA Withdrawal
Like many retired federal employees, this retired FBI agent had most (but not all) of his savings in tax-deferred accounts originally from his TSP and now in his traditional IRA. That means every dollar withdrawn for home improvements would be counted as taxable income—on top of his FERS pension and Social Security benefits.
That matters for a few big reasons:
- Tax Bracket Creep: A large IRA withdrawal could push him into a higher marginal tax bracket.
- IRMAA Surcharges: Higher income could trigger Medicare premium increases (IRMAA), costing hundreds or even thousands more per year—sometimes for just one dollar over the threshold.
- Social Security Taxation: A higher income can cause more of your Social Security benefits to be taxed.
In short: the projects may cost $60,000 on paper, but without proper tax planning, they could end up costing much more.
The Power of “Tax Timing” for our FBI agent
Our goal wasn’t just to figure out how to pay for the projects, but to find the least damaging way to do it from a tax perspective.
Here’s what we evaluated.
1. Windows: Fall 2025 ($18,400)
- Option A: Pay all in 2025 from the IRA (one-time $18,400 withdrawal).
- Option B: Use the 15-month, same-as-cash option—distribute ~$1,250/month across 2025–2026, smoothing out the tax impact.
2. Flooring: Summer 2025 ($21,700)
- Option A: Pay in full this year.
- Option B: Finance over 24 months (interest-free) and distribute ~$904/month over three tax years (2025–2027), minimizing IRMAA risk.
3. Deck: Winter 2026 ($23,500)
- Option A: Pay in Full in 2026 (once the project starts)
- Option B: Consider deferring payment over 2026 and 2027. (at the time, publishing, finance options were not available)
Using Roth, TSP, and Brokerage Accounts for Flexibility
Thankfully, our client had a few aces up his sleeve. While the bulk of his assets were in a tax-deferred account (his IRA/TSP), we had also built-up balances in other, more flexible buckets. What gave his withdrawal plan real tax flexibility was the mix of account types available:
- TSP/IRA (Tax-Deferred): His primary funding source, but with taxable implications.
- Roth IRA (Tax-Free): Useful when we want to avoid increasing his taxable income.
- Brokerage Account (After-Tax): Provides liquidity without triggering additional ordinary income.
Thanks to assets he had already accumulated—plus some well-timed Roth conversions over the past five years—we had created a healthy mix of what I like to call “no-strings-attached money.” In other words, funds he could tap without bumping up his income.
Here’s how the funding plan came together:
We were able to design a strategy that aligned his cash flow needs with smart tax timing—avoiding surprises and helping keep both Medicare premiums and tax rates under control.
- Finance Renovations Over Two Years:
The windows and flooring will be financed over 24 months. To cover payments, we’ll make IRA withdrawals only up to the threshold that keeps him in a lower tax bracket and avoids IRMAA surcharges. We’ve calculated that to be about $25,000 in both 2025 and 2026. - Tap Roth for Flexibility:
We’ll draw an additional $20,000 from his Roth IRA in 2026 to finish the project. The final number may change depending on the deck’s cost, but we already know the income thresholds we want to stay under—and we have the tools to adjust accordingly. - Brokerage Account as Backup:
And of course—because nearly all construction projects go over budget—we’ve reserved the after-tax brokerage account as a flexible back-up.
We chose a funding strategy that spreads the tax impact across multiple years, while strategically using his Roth and brokerage accounts to minimize the overall tax burden—without compromising his renovation goals.
💡 Key Takeaways for Federal Employees Facing Big Expenses
1. Don’t Put All Your Eggs in One (Tax) Basket
While tax-deferred accounts like the TSP and traditional IRAs are great for building wealth, they come with strings attached—namely, income taxes and required minimum distributions (RMDs). Having a mix of account types (Roth, brokerage, tax-deferred) gives you the flexibility to control your tax bill in retirement.
2. Roth Conversions Can Be a Lifesaver—If You Plan Ahead
Our client had been doing Roth conversions gradually over the past few years. Those moves didn’t save much on taxes at the time—but they opened up huge flexibility now. That’s the magic of tax planning: the real payoff often comes later.
3. Cash Flow and Tax Planning Go Hand-in-Hand
Big expenses like home renovations or helping adult children can quickly become tax landmines if you’re not careful. The trick is aligning your cash flow needs with your tax brackets—and knowing which account to use, when.
4. Medicare IRMAA Surcharges Can Sneak Up on You
Crossing certain income thresholds can result in higher Medicare premiums. Our client avoided those surcharges by intentionally limiting taxable withdrawals each year. It’s not just about income taxes—it’s about managing your entire financial picture.
5. Brokerage Accounts Deserve More Love
After-tax brokerage accounts are often overlooked, but they’re one of the most flexible tools in a retiree’s toolbox. They offer liquidity, capital gains treatment, and no RMDs. In a pinch, they can be powerful safety valve.
6. The Real Benefit of Diversification Isn’t Just Investment Risk—It’s Tax Flexibility
True diversification goes beyond your portfolio Tax diversification gives you options, and options give you control—especially when markets or life throw you curveballs.
Final Thought
As a federal employee, you’ve likely done a great job saving into the TSP and building a reliable pension—but tax planning doesn’t stop at retirement. In fact, that’s often when it matters most. Like in our Case Study with Vince, tax planning is often underappreciated.
Both Vice and this case highlights how having a mix of TSP, Roth, and after-tax savings can give you the flexibility to fund major expenses—without accidentally triggering higher taxes or Medicare premiums.
Strategic withdrawals, properly timed Roth conversions, and diversified account types can help you avoid surprises and stay in control of your retirement income.
Whether you’re planning a big project, considering a move, or simply trying to make your savings last, remember: it’s not just how much you’ve saved—it’s how you use it that counts.
💬 Thinking About a Big Expense in Retirement?
Before you start pulling from your IRA or swiping that HELOC, talk to a financial advisor who integrates tax strategy into your retirement plan—not just investment advice.
At Mission Point, our GS-Retirement Planning Process—refined over 20 years of working with Federal Employees—helps you avoid costly tax surprises by analyzing how every withdrawal affects your income, Medicare premiums, and overall plan. Then, we build a personalized strategy that supports both your wallet and your peace of mind.
💡 Wondering how your current income plan stacks up?
Get our free guide, the Federal LEO Retirement Security Alert, and learn how to protect your hard-earned savings from hidden taxes in retirement:
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
This is a hypothetical situation based on real life examples. Names and circumstances have been changed.
The opinions voiced in this material are for general information only and are not intended to provide specific individualized investment, tax or legal advice for any individual. We suggest that you discuss your specific situation with a qualified, legal advisor and financial advisor
Securities and advisory services offered through LPL Financial, a registered
investment advisor. Member FINRA/SIPC.
