People rarely think about their finances in the summer months. Tax season is over and Open Season is months away. But for federal employees and retirees, summer sits in the middle of a tax year that still has time left to course correct. There are decisions that hurt people in April, such as underpaid estimated taxes, a TSP withdrawal that pushed them into a higher bracket, or a Roth conversion that happened at the wrong amount. These decisions were usually made months earlier, like now, without anyone connecting the dots.
Summer is when the dots can still be connected.
The Problem with Planning in Silos
Most federal employees have two separate professionals handling their financial life: a financial planner and a CPA or tax preparer. Both are competent, but neither one has the full picture.
The financial planner sees the investments, the TSP, the pension elections, the income strategy. The CPA sees what happened last April. Between those two views sits a gap where expensive mistakes tend to live.
A common example: a financial planner recommends a Roth conversion in a given year because the income looks favorable. What they don’t see is that the same year, a TSP withdrawal, a pension cost-of-living adjustment, and a part-time consulting income all landed together. The CPA sees the tax bill in April. By then, nothing can be undone.
Take a typical scenario: a retiree adjusts their withholding early in the year, then makes a TSP withdrawal mid-year without revisiting that number, and by the time the CPA prepares the return the following spring, an unpleasant surprise is already locked in. This is what happens when planning is disconnected — one change made without checking it against the rest of the picture.
One of the simplest ways to prevent anything like this from happening is real-time coordination between the financial planner and CPA before the year ends.
What Summer Actually Allows You to Do
There are roughly five months left in the tax year right now. That’s enough time to make meaningful adjustments, if you use it.
Adjust your withholding. Federal retirees and separated employees often underestimate how much tax their pension income generates, especially when combined with TSP distributions and Social Security. A mid-year review of what you’ve earned so far versus what’s been withheld can prevent a large April bill. Withholding can be updated any time during the year. Note that TSP does not withhold state tax, so that gap needs to be planned for separately.
Run a Roth conversion at the right amount. If your income is running lower than expected this year, you may have room in your current bracket to convert some traditional TSP or IRA funds to Roth. The key word is some. Converting too much in one year can push you into the next bracket or trigger IRMAA surcharges on Medicare premiums. Getting that number right requires knowing your full income picture, which is exactly what a planner and CPA working together can provide.
Catch a bracket problem before it’s permanent. If your income is trending higher than you planned, there may be steps to take now. Increasing TSP contributions, timing a deduction, or deferring income where possible. Once December 31 passes, the year is locked.
Review estimated tax payments. Federal retirees who receive pension income, TSP distributions, and Social Security are often required to pay estimated taxes quarterly, particularly if their withholding hasn’t been set up accurately throughout the year. The third quarter payment is due September 15. A summer review catches shortfalls before that deadline.
Why Federal Benefits Specifically Require This
Federal retirement income is more layered than most people realize. A FERS pension is fully taxable as ordinary income. TSP distributions stack on top of it. Social Security may be partially taxable depending on combined income. Each of these income sources requires you to manually elect or update withholding, and TSP withdrawals will not withhold state tax at all. IRMAA surcharges on Medicare Part B and Part D can kick in at income levels many federal retirees don’t expect to hit.
Each of those income sources has its own withholding rules, its own timing, and its own interaction with the others. A financial planner who understands federal benefits but doesn’t have real-time tax visibility will miss things. A CPA who prepares the return but isn’t involved in the planning will catch them in April.
The federal benefits landscape is detailed enough that it needs both perspectives working together, not comparing notes once a year.
The Window Is Open
By April, the prior tax year is already closed, and December leaves too little runway to act on what you find. Summer is the stretch of the year when federal employees have time, visibility, and enough runway to make changes that matter.
This article is for informational purposes only and does not constitute personalized financial, tax, or legal advice. Please consult a qualified financial professional and tax advisor before making changes to your retirement accounts, withholding, or tax strategy.
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.
About the Author
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.