Taxes in Retirement
Taxed less than a paycheck, and least of all in the years before 62
Federal tax estimator
Tax year 2026 brackets and standard deduction.
Saved in this browser only, never uploaded.
Enter at least your gross pension to estimate your federal tax.
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Saved. The pension and timeline calculators now use your rate.
Estimate only, not tax advice. Federal income tax on ordinary income with the standard deduction (under 65); it ignores state tax, FICA on wages, itemized deductions, unearned income (interest, dividends, rentals), credits, the small tax-free share of your annuity, and the age-65+ deductions. Your real return is more complicated, so confirm with a tax professional.
The Roth conversion window
Retire early and your taxable income drops hard; those low years are your cheapest chance to move traditional TSP into Roth. How cheap depends on the bracket room your pension leaves, and the tool below prices yours.
Conversion headroom
Uses the income and filing status you entered above.
The window has real edges
It opens the year after your last full salary year and starts closing at 62, when Social Security fills the low brackets. RMDs at 73 end it. A controller retiring at 50 can get a decade of cheap conversions.
The fine print
Each conversion has its own 5-year clock before converted dollars come out penalty-free under 59½; most states tax conversions; and big conversions after 63 can raise your Medicare premiums (IRMAA). Convert with a plan, not all at once.
How each income stream is taxed
Federal treatment, stream by stream. The short version: almost everything is ordinary income, but none of it pays FICA.
| Stream | Federal income tax | The detail that matters |
|---|---|---|
| FERS pension | Mostly taxable | A small slice of every payment is a tax-free return of your own contributions (IRS "Simplified Method," Pub 721). OPM does the math on your 1099-R. |
| SRS | Fully taxable | Ordinary income, same as the pension, but OPM does not withhold on it by default. Adjust your W-4P or expect a bill. |
| Traditional TSP | Fully taxable | Every withdrawal is ordinary income: the deferred half of the deal. Most withdrawals have 20% federal withholding by default. |
| Roth TSP | Tax-free once qualified | 59½ plus 5 years since your first Roth contribution. Before that, the earnings portion is taxable even though ATC retirees owe no early-withdrawal penalty. |
| Social Security | 0–85% taxable | Depends on "combined income." With a full ATC pension, expect the 85% end. Never 100%: at least 15% is always tax-free. |
| Annual-leave lump sum | Taxable wages | Paid and taxed as salary (with FICA) in your final year. Stacked on a full year of pay, it can nudge that year into a higher bracket. |
| Payroll taxes | Gone | No FICA on pension, SRS, TSP, or Social Security: a built-in 7.65% raise on every retirement dollar compared to the same salary. |
Getting the withholding right
Nobody withholds for you by default the way payroll did. Three settings to check in your first year:
Annuity: W-4P at OPM
Set with your retirement package, adjusted anytime in Services Online. Re-check it after your case finalizes; interim-pay withholding rarely matches your real rate.
TSP: per-withdrawal
Most traditional withdrawals default to 20% federal withholding; installments over ten years withhold like wages. Match it to your bracket, not the default.
Gaps: quarterly estimates
SRS with no withholding plus a Roth conversion can leave you underpaid. IRS Form 1040-ES quarterlies (or bumping the W-4P) close the gap without penalties.
And your state?
Nine states have no income tax (AK, FL, NV, NH, SD, TN, TX, WA, WY), and many others exempt some or all of a federal pension. State treatment varies enough to belong in your relocation math, not just your tax math. Check your state revenue department before you count on either answer; the estimator above is federal only.