Avoiding Withdrawal Pitfalls: Retirement Planning for Federal Employees

Apr 18, 2025 | Retirement Planning

Retirement planning for federal employees comes with unique challenges – especially when it comes to deciding how and when to withdraw from your plan. As you approach retirement, you may be feeling a mixture of excitement and overwhelm. From understanding available options to avoiding penalties and meeting IRS deadlines, there’s a lot to consider.

You’ve worked hard, now it’s about making sure your retirement funding works just as hard for you. With the right guidance and planning, you can make confident decisions and avoid costly missteps.

 

 

 

Understanding Your Retirement Withdrawal Options

When it’s time to access your retirement savings, you’ll face decisions that can impact your income, taxes, and financial security for years to come. You may have the option to choose a lump-sum payout, monthly payments, or an annuity.

 

Pros and Cons of Common Withdrawal Methods
  • Lump-sum payments provide immediate access to funds but may increase your tax liability.
  • Monthly withdrawals help manage your tax bracket and provide steady income.
  • Annuities offer predictable payments but may limit flexibility.

Carefully review these options in light of your overall financial goals.

 

 

 

 

Avoid Early Withdrawal Penalties

Withdrawing before age 59½ may result in a 10% early withdrawal penalty. However, if you separate from service at age 55 or older, you may qualify for an exception.

 

Timing Matters

Planning your withdrawals around these milestones is key. Consider consulting with a financial advisor to create a timeline that minimizes taxes and penalties.

 

 

 

 

Planning for Required Minimum Distributions (RMDs)

Once you turn 73, the IRS requires you to begin taking minimum distributions from your retirement account.

 

Missing RMDs Can Be Costly

Failing to take your RMDs on time can lead to a 25% penalty. Setting up automatic reminders and a withdrawal strategy can help you stay compliant and maintain consistent cash flow.

 

 

 

 

Coordinate Retirement Income Sources

Retirement planning for federal employees often involves multiple income streams—such as Social Security, pensions, and other savings.

 
Manage Taxes with an Income Plan

Coordinating withdrawals can help balance your income and control your tax bracket. A well-planned income strategy ensures stability and reduces surprises during tax season.

 

 

 
 
Talk to a Financial Advisor Who Understands Federal Benefits

We recommend working with a financial advisor who understands the federal system. Federal employee benefits can be complex, and strategic planning can help you avoid common pitfalls.

Two of our Wealth Advisors at Cornerstone—Gordon Wollman and Jill Mollner—hold the Chartered Federal Employee Benefits ConsultantSM (ChFEBCSM) designation. Their training helps ensure we understand the specialized needs and concerns of federal employees.

 

 

 

 

Ready to Take the Next Step?

If you’re seeking clarity and confidence in your retirement journey, we’re here to help. Schedule a complimentary strategy session today to talk through your goals and build a plan that fits your future.

Call 605-357-8553 in Sioux Falls or 605-352-9490 for our Huron office.
Email cfsteam@mycfsgroup.com

Raymond James and Cornerstone Financial Solutions are independent from, and are not affiliated with, or endorsed by, the U.S. Government, the Federal Employee Retirement System, or any other Federal Government-sponsored benefits programs or retirement plans. Clients should consult their plan administrator for detailed plan information.

Gordon Wollman and Jill Mollner hold the Chartered Federal Employee Benefits ConsultantSM (ChFEBCSM) designation. Federal Seminars and ChFEBCSM, Inc. owns the symbol marks ChFEBCSM, Chartered Federal Employee Benefits ConsultantSM and ChFEBCSM logo in the U.S. CSP #761837 Exp. 4.17.25.

Tax-Deferred Investment Mistakes

Feb 4, 2025 | Investing

What Are Tax-Deferred Investments?

Tax-deferred investments allow your money to accumulate tax-free until you make a withdrawal.  (Ideally, after retirement.)  These withdrawals are then taxed as ordinary income.  Traditional IRAs, 401(k)s, and annuities are all examples of tax-deferred investments.

 

Common Ways People Misuse Tax-Deferred Investments

Unfortunately, many pre-retirees misuse these types of investments in the following ways:

 

Taking withdrawals too early.

This can rob your retirement of much needed savings.  In some cases, it can also come with additional penalties.  For example, if you make withdrawals from an IRA prior to age 59½, the money would be subject to a 10% penalty from the IRS in addition to being taxed.

 

Not contributing the maximum annual amount.  

Most tax-deferred investments have a cap on how much you can contribute each year.  But many people vastly undershoot this cap.  It’s quite common to see people put their tax-deferred accounts on the bottom of the pole.  Other types of investments, or even just spending, take priority.  As a result, these people are not benefiting from all that tax-deferred investments have to offer.

 

Contributing after-tax dollars instead of pre-tax dollars.  

Sometimes, it’s easy to get careless and contribute money that you have already paid taxes on.  Remember, when you withdraw that money down the road, it will be taxed again as ordinary income.  That’s called double-taxation, and no one wants that!  Instead, make contributions with pre-tax dollars whenever possible.

 

Not choosing the right investments.  

A tax-deferred account may be great from a tax standpoint, but if you want the money inside those accounts to grow, you have to choose the right investments.  Some types of investments may actually lead to higher taxes in retirement than they would through capital gains in a taxable account.  Always pay close attention to which investments are going into each account you own.

 

Need Help With Your Tax-Deferred Investment Strategy?

If you are concerned you may be misusing your tax-deferred investments or just aren’t sure of it, let us know, we are happy to help!

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Cornerstone Financial Solutions, Inc. and not necessarily those of Raymond James.  CSP # 704811. Exp. 1.24.26