A retiree faces federal, state, and FICA taxes on combined $213,000 income, complicating TSP withdrawal strategies.
A retired Navy officer with a $48,000 military pension and a $165,000 civilian salary faces three layers of taxation: federal income tax, state income tax, and FICA on the salary. Combined income totals $213,000, placing the household in the 24% federal bracket, near the 32% threshold.
The retiree’s Thrift Savings Plan (TSP) balance of $1.3 million is subject to tax-efficient conversion strategies. Retiring at 65 would drop income by $165,000, creating an 8-year window to convert TSP funds at a 12% to 22% rate, avoiding the current 24% bracket. Delaying conversions until after civilian employment ends could reduce tax liability.
Joint filers face a 2026 standard deduction of $32,200, with the 24% bracket applying to income between $211,400 and $403,550. A single bonus or spouse’s raise could push taxable income into the 32% bracket.