There is an old saying that claims, “It’s not how much you make that’s the most important, but how much you keep.” Uncle Sam does his best to take at least a portion of everything we make. It is up to us to understand tax laws and retain as much as possible.
Tax planning is different from investing in that we have known information at the time we do it. We know exactly what the tax laws are this year. Making 8% and losing 1% to taxes is better than making 10% and losing 3% to taxes, yet many people fail to make that connection.
Below are eight tax planning strategies I use most often with federal retirees to preserve their nest egg and pass on more to the next generation. Each one gets a short summary here and a link to the post where I walk through it in detail. If you want the big picture of how retirement income is taxed first, start with how to avoid getting crushed by taxes in retirement.
1. Know your tax bracket before you do anything else
Every strategy below starts with knowing where you fall in the tax brackets. Before you act, answer these questions:
- What is your taxable income?
- How much room is there until you are bumped into the next tax bracket?
- Which capital gains bracket are you in?
- What will your taxable income be next year?
For 2026, a married couple filing jointly gets a $32,200 standard deduction, and the 12% bracket runs all the way up to $100,800 of taxable income. That means a couple can have about $133,000 of income before a dollar is taxed at 22%. Retirees 65 and older get more: an extra $1,650 per spouse, plus the new $6,000 senior deduction per person for 2025 through 2028 (it phases out above $150,000 of income for couples). A lot of people get the brackets wrong, so I wrote up how tax brackets really work.
2. Do Roth conversions in low-bracket years (now inside the TSP)
This strategy is one that I have talked about over and over again. Roth conversions should be looked at every year if you want to minimize future taxes. Of course, this option won’t be advantageous for everyone. But if it is, it can save you thousands (or tens of thousands) in taxes over your lifetime.
Here’s what that looks like. Joe and Mary retired last year, and their annual leave and savings cover this year’s spending, so they don’t plan to take anything from their retirement accounts. Their taxable income after the standard deduction will be about $40,000. To fill the 12% bracket, they could convert about $60,800 and pay roughly $7,300 of federal tax on it, versus 22% or more they expect in later years. If this year’s rate is lower than your future rate, a conversion makes sense. If it’s higher, it probably isn’t a good fit.
The big change: since January 28, 2026, you can convert traditional TSP money to Roth TSP inside the plan. You no longer have to move it to an IRA first. The TSP withholds no tax on a conversion, so plan to pay the bill from another account. Converting also shrinks future required minimum distributions (RMDs), which start at 73, or 75 if you were born in 1960 or later. I cover the rules in Roth TSP Conversions, and how much to aim for in How Much Should I Have in Roth Accounts?
3. Choose which account each withdrawal comes from
In retirement, you get to decide which accounts your income comes from: taxable, tax-deferred (traditional TSP and IRAs) or tax-free (Roth). In a high-income year, pull from Roth or taxable money. In a low-income year, pull from traditional money and use up the cheap brackets. If you have both traditional and Roth TSP balances, the TSP now lets you choose traditional-only, Roth-only or a proportional withdrawal. (It still comes out of every fund pro rata.)
I walk through a full year-by-year example in TSP Distributions and Tax Planning for Federal Retirees, and the order question in Should You Spend Your Taxable Brokerage Account First in Retirement?
4. Time large withdrawals across tax years
Big one-time needs, like a down payment or a new roof, are where timing pays. A client of mine wanted $100,000 from his TSP right after retiring. By splitting the money between his retirement year and the following January, he stayed in the 12% bracket and saved about $5,000 of federal tax. The story and the math are in Taxes and Timing Matter.
5. Harvest capital gains (and losses) in your taxable account
For 2026, married couples pay 0% federal tax on long-term capital gains as long as their taxable income stays at or below $98,900 ($49,450 single). If Joe and Mary stay in the 12% bracket, they could sell a position with a big gain and immediately buy it back to raise their cost basis, at no federal tax. Even if it’s a position you prefer not to sell, it can be worth it. Just keep in mind that gains and Roth conversions compete for the same room in the bracket.
Tax-loss harvesting is the other side. Sell losing positions, use the losses to offset gains, and deduct up to $3,000 a year against ordinary income, carrying the rest forward. Don’t buy back the same or a “substantially identical” investment within 30 days before or after the sale, or the wash sale rule disallows the loss. Both are for taxable accounts only. I keep both on my list of year-end tax planning ideas.
6. Give to charity with QCDs, or bunch your deductions
If there is an underutilized tax strategy for the middle class, it is the qualified charitable distribution (QCD). A QCD is an otherwise taxable distribution from an IRA that is paid directly to a charity. You must be 70½ or older, and for 2026 you can give up to $111,000 this way. There is no tax deduction, but there are no taxes to be paid on the distribution, either, and once RMDs start, a QCD can count toward your RMD. QCDs can’t be done from the TSP; the money has to be in an IRA. More in Reduce Your Retirement Tax Bill by Strategic Giving.
Most federal retirees take the standard deduction, so regular gifts bring little tax benefit. Starting in 2026, non-itemizers can deduct only up to $2,000 of cash gifts on a joint return ($1,000 single). If you are under 70½ or don’t have an IRA, bunching two or three years of giving into one year can push you over the $32,200 standard deduction, which I show in Save Tax $$ By Bunching Deductions.
7. Watch the IRMAA thresholds for Medicare
If you take Medicare Part B, a high-income year costs you more than income tax. For 2026, the standard Part B premium is $202.90 a month, and surcharges (IRMAA) start when modified adjusted gross income is above $218,000 for married couples ($109,000 single). IRMAA looks back two years, so a big conversion or withdrawal this year can raise your premiums two years from now. I cover how this plays out for federal retirees in A Great Reason Not to Take Medicare Part B.
8. Get your withholding right
Good planning doesn’t help if you are surprised by a tax bill in April. The TSP must withhold 20% on single withdrawals and on installments expected to last less than 10 years, and it withholds nothing on Roth conversions. Your FERS annuity and Social Security withholding need to be set up too, and the first year of retirement is where most people get it wrong. See Warning: Adjust Tax Withholding in Your First Year of FERS Retirement.
Don’t let another year go by
These are the most common tax planning strategies I have implemented with federal employees. Not every one fits every retiree, and some work against each other in the same year. Please don’t let another year go by without considering the taxes you pay and the ways to reduce your tax bill today and in future years.
Tax planning is a big part of the federal retirement planning I do with clients. If you think you would find value in help from a professional financial advisor on these topics, you are welcome to schedule a call to discuss working together.
Brad Bobb, CFP®, Bobb Financial, is an expert in federal benefits and retirement planning for federal employees.
This article is for educational purposes only and is not individualized financial advice. Figures are illustrative.