The Edgepoint Wealth Management Guide to a Second Career After the Military: 6 Tax Mistakes to Avoid

$24,500 is one limit across every employer plan

For 2026, the IRS caps employee deferrals at $24,500 per person, not per employer. Your TSP, a civilian 401(k) and a 403(b) all draw on that single bucket, and the cap is the same whether you choose traditional or Roth. A governmental 457(b), the kind many school districts and cities offer, comes with a second, independent $24,500 limit.

Catch-ups sit on top for 2026. At age 50 and over, the IRS adds $8,000, for a $32,500 total. At ages 60 to 63, the catch-up rises to $11,250 in place of the $8,000. One wrinkle: if your prior-year FICA wages from the employer that runs the plan were above $150,000, every catch-up dollar must be a Roth contribution.

Employer match is a different animal. It doesn't count toward your $24,500. It counts only toward the $72,000 total defined contribution limit, which adds your own deferrals and the employer's money together. So a new employer's match doesn't shrink your room. Your own TSP deferrals do.

How much can you defer in the year you take off the uniform?

Take $24,500 ($32,500 at age 50 and over) and subtract the year-to-date TSP deferral shown on your final LES. That remainder is the most you can defer into a new civilian plan for the rest of that calendar year, across every plan combined.

At Edgepoint Wealth Management, the first document we ask a new separator for is that final LES. Take a hypothetical separator under 50 who put $15,000 into the TSP before leaving and then another $15,000 into a new 403(b). The total is $30,000, which is $5,500 over the limit. At 22 percent, she pays $1,210 of tax on the excess now and the same $1,210 again when the money is drawn later.

A $5,500 excess left sitting in a new 403(b) is a paperwork mistake. The plan never learns about the TSP money unless you tell it in writing, because neither plan can see the other. The fix is yours to start: write to the civilian plan, ideally by early March, and ask for a corrective distribution of the excess plus its earnings before April 15. Skip it, and you pay $1,210 twice.

The math on your final LES

Fixing an excess before April 15

$42,000 of retired pay lands on top of every salary dollar

DFAS withholds on retired pay using the W-4P you filed in uniform, and that form was often set up as if the pension were your only income. Your civilian employer's W-4 knows nothing about the pension either. The gap shows up in April as a balance due, sometimes with an underpayment penalty. Add extra flat withholding on retired pay in myPay, or use the multiple-jobs step on the W-4. Leave VA compensation off both forms, because it is never taxed.

Retired pay also pushes your modified adjusted gross income (MAGI, roughly your income after certain deductions) toward the Roth IRA phase-out of $153,000 to $168,000 for single filers. A $24,500 pretax deferral pulls MAGI back under that range. At a $130,000 salary, the deferral decides whether you get a full Roth IRA contribution or nothing at all. VA compensation never counts in MAGI.

A direct Roth IRA contribution made while above the phase-out is an easy error to make. At age 50 and over, the $8,600 excess draws a 6 percent excise tax of $516 for every year it stays in the account (reported on Form 5329).

The withholding gap

Where MAGI meets the Roth IRA line

Faye's 3 final working years and a $3,000 457(b) gain

Faye (hypothetical) is 63, widowed and a retired Army warrant officer. She manages logistics for a school district at $85,000 a year, collects about $42,000 a year of taxable retired pay (for illustration), and gets tax-free VA compensation on top. Her $650,000 sits across the TSP and a 403(b), and she plans to stop working at age 64.

Suppose she had added $10,000 a year to the district's 457(b) at ages 61, 62 and 63, taxed at an assumed 22 percent top rate. At age 61 that's $10,000 deferred and $2,200 less tax. At age 62 the running totals are $20,000 and $4,400. At age 63 they reach $30,000 and $6,600.

After she stops at age 64, say those dollars come out taxed at 12 percent. She owes $3,600 on $30,000. Net gain: $6,600 minus $3,600 is $3,000, before any growth. The gain exists only because her later rate is lower. A pretax deferral shifts tax to a later year, it doesn't erase it. You can rerun this with your own numbers in the calculator on this site.

Three places can take her extra savings, and the table lines them up on the same criteria.

The Roth IRA column deserves a second look. With MAGI near $127,000 Faye is under the phase-out, so she can put in $7,500 directly. It gives no tax cut now, but contributions can come back out any time, which helps if her health or the district's budget moves her stop date.

Before Edgepoint Wealth Management suggests adding a 457(b), it estimates the rate on Faye's income draws after age 64, before and after Social Security starts. That money is invested too, and it can drop in value, sometimes for years. A retiree with a large pension and a big traditional balance facing required minimum distributions may pay the same or more later, and 457(b) menus and fees differ by employer.

Three years, year by year

Where the next dollar goes

How long do you have to undo a contribution mistake?

Most contribution mistakes can be undone, but the window shrinks fast, and the order runs from easiest to impossible. A deferral election can be changed for the next pay period. A W-4P on retired pay can be changed any time in myPay.

An excess deferral must be out of the plan by April 15 of the following year. An excess or ineligible Roth IRA contribution can be removed or recharacterized up to the tax filing deadline, including extensions. A Roth conversion can't be undone at all. The SBP election made at retirement is generally locked in, a point our article on SBP versus life insurance for spouses covers.

Leaving at age 41 or age 64 changes the account order

A chief who leaves at age 41 and later quits a civilian job before age 59½ can take 457(b) money with no 10 percent penalty. A 401(k) left in the year he turns 55 or later avoids the penalty too. An IRA generally does not. So the early leaver often wants the 457(b) near the front of the line for savings he may need before 59½.

Faye files single, with a $16,100 standard deduction and a $153,000 to $168,000 Roth IRA phase-out. A married couple filing jointly gets a $32,200 standard deduction and a $242,000 to $252,000 phase-out, so the same pension plus salary lands in a lower bracket.

Balance size matters too. Required minimum distributions (RMDs, the yearly draws the IRS forces out of pretax accounts) start at age 73, or age 75 for anyone born in 1960 or later, which includes Faye. A large traditional balance on top of retired pay makes later income draws taxed higher, and that weakens the case for more pretax deferral. Our article on TSP versus IRA after retirement covers how access rules and Roth handling differ.

Early separation and the 59½ rule

Filing status and balance size

How soon after the first civilian paycheck should you act?

Within the first pay cycle, pull your final LES, add up the year-to-date TSP deferral, and set the civilian election to the remaining room only. That one step prevents the excess deferral, and nothing else on this page costs as much to miss.

Before the second paycheck, estimate the combined tax on pension plus salary and add flat withholding on retired pay in myPay. Don't put VA compensation on any W-4, because it is never taxed.

Before any Roth IRA contribution, estimate MAGI (salary plus retired pay, minus pretax deferrals) against the phase-out range. If the employer offers a 457(b), add it to the comparison. A TSP rollover is a separate decision that can wait.

Edgepoint Wealth Management's second-career tax check before your next W-2

Edgepoint Wealth Management reviews your final LES, your first civilian pay stub and your myPay withholding side by side, then writes that year's deferral room and withholding fix into your playbook. We plan the income draws first and pick investments second, so the tax check comes before any fund talk. The request form sets up a first conversation, with no promise about the outcome. We meet by video or phone, wherever the new job has taken you.