Eric White We’re coming close to the end of the year. It’s been a shaky end as usual, and you’ve got open season tackling in and everything like that. You know, tell me why this is the perfect time to be thinking about taxes next April.

Thiago Glieger I know, this is the topic nobody likes to think about, especially not early and before we have to, right? But smart federal employees are looking at their income year to date, and they’re looking at things like tax withholding. If there were any major changes this year, like a promotion or a bonus, or maybe your spouse retired, something like that, your withholding might be off. And then there’s a variety of other things too, that you’ll want to incorporate, like making sure that you don’t wanna incorporate some kind of charitable giving. A lot of people do that at the end of the year. There’s RMDs that come in. So there’s a lot of little things that, if we start paying attention to now, all of it affects taxes. So we wanna get ahead of those things.

Eric White Yeah, so let’s get into it rather than actually saying let’s get ahead of it. How do you actually go about doing that?

Thiago Glieger Yeah, so one of the biggest things we tell federal employees to be aware of, Eric, is to make sure that they are actually maximizing their TSP contributions, if they can afford to do so. Obviously, this is an interesting time to be doing that, given that, you know, people aren’t being paid, but the idea of maxing out the TSP helps you to save on taxes if you’re using pre-tax contributions. So before the end of the year, you want to try and get as much as you can in there. So the contribution for 2025, the limit is $23,000. If you are over 50, it’s $7,500 additionally. So if you’re behind on contributions and you actually want to get all of those paychecks in there, you can actually adjust some pay periods so that you do a little bit more and get yourself caught up. Okay, now for 2026, this is where some of the big changes are going to come to the TSP contributions. First, we’re going to start getting the normal inflation adjustment for the contribution limits. The amount that you can contribute under 50 goes up by a thousand and then catch-up goes up by another 500. But the biggest change is how that catch-up contribution is going to happen. So for people who are over 50 and they’re going to be earning $145,000 or more as a federal salary, they can no longer do that pre-tax deduction. What does that mean? That means you’re going have to pay taxes on all of that catch-up contribution. So. This is a pretty big thing as people start thinking about taxes for next year. Your taxable income could actually be going up and you might actually owe a little bit more in tax.

Eric White Yeah. Are there any changes coming down the pipeline that you’re hearing regarding TSP contributions? Are those amounts going to go up again in the backdrop of that? This is a very strange time to be talking about this.

Thiago Glieger Yeah, Eric, each year we see a little bit of an inflation adjustment where the … IRS actually will come out and say, hey, everyone participating in a 401k type of plan like the T.S.P. Now you can put a little more each year. It Just helps you stay on top of saving a little but more. And so we’re definitely going to see that. Of course, for anyone over 50, you have that additional catch up contribution. And then for people who are a little older than that, there’s the special catch up contribution as well. So, lots of ways to get more money in the Thrift Savings Plan, and again, if you’re already thinking about taxes for next year, you want to consider whether or not you’re going to be forced to do Roth contributions for the catch-up, because that means you have to pay the tax up front, and so that’s a big change both in the amounts and in how you’re contributing that’s coming to the TSP next year.

Eric White I’m talking with Thiago Glieger, private wealth advisor for RMG advisors. On those TSP contributions, we’ll get a little bit more into the investment side of things, but during this time that we had mentioned, a lot of folks aren’t getting their paychecks regularly. The idea of borrowing against your TSP plan is now a plan that most folks are going to have to result to. What can you tell us about what they should be on the lookout for if it comes down to that.

Thiago Glieger Yeah, Eric, this is just such a hard time for federal employees and it’s really unfortunate that we are down to these last little solutions of trying to borrow against ourselves. But the idea of borrowing from ourselves instead of borrowing another type of creditor like a bank or a financial institution means that you’re going to be paying yourself the interest if you borrow from the TSP and it forces you as soon as you start getting paid again. It forces you to start repaying yourself back each paycheck. So it really allows you to be very disciplined and not overspending, taking the money and then not ever paying it back. The reason that that’s very nice is because it gives you access to liquidity immediately. And if you have to put food on the table, you have make a bill payment, you have pay your mortgage, that’s a really good way to get cash very quickly — which the TSP is still functioning. A lot of people think that the government is shut down, people can’t access the TSP. That’s not true. You can actually go in there and get that. There’s different types of TSP loans. You can get up to $50,000 for a GenPurpose one. And you can see the information. The TSP has a really nice page that talks about the loans and how they work and how much you can get. If you’ve tapped it before, then obviously there’s going to be some limitations there. But if you’re in a dire situation and you’re looking at, you know, not being able to make a mortgage payment or having to put some huge bill on a credit card and possibly start down this rabbit hole of credit card debt, the TSP loan can be a really good option for you.

Eric White Let’s look at farther down the future here. As far as capital gains and avoiding the tax bill that can sometimes come when you’re looking for liquidity fast and easy from selling some of your holdings, what is it that people should keep in mind if they go that route?

Thiago Glieger The big thing, Eric, with capital gains is that people who own non-retirement accounts, so brokerage accounts, right — they are going to be subject to any sort of capital gains taxes. And there’s a lot of things that you can do to help reduce those taxes, one of which is called tax-loss harvesting. So this is something that as the markets go up and down, you can take use of that volatility and create tax savings for yourself throughout the year. So it is something you want to do year round, but you can always look at this time of the year and go back and see is there anything in my portfolio that I could sell that could help me to create some tax savings. If you have additional tax loss beyond any of the gain that you’re realizing you can actually offset up to $3,000 of your salary in these capital losses as well. So if you think about salary income, that’s the highest form of tax that we have. And if you can reduce $3,000 worth of that salary for tax purposes, then you’re actually saving several hundreds of dollars in taxes simply by doing a very simple strategy in your portfolio.

Eric White And the length of holding those positions also has an effect on that. Do I have that correct?

Thiago Glieger That’s right. If you’re going to be realizing gains or losses, depending on how long you held it, the IRS treats that differently. So the key number we want to be aware of is 12 months or more. Anything that’s 12 months is considered long-term, right? And anything that’s less than 12 months, is considered short-term. The only other time horizon thing that you want to be aware of too, Eric — that I think you were alluding to — is this idea of a wash sale. So if you’re creating tax savings from a loss in your investments, you gotta be really careful about not to rebuy the same stock within a period of time, not have sold it prior to the sale. There’s some rules around there that you gotta be real careful [about].

Eric White All right, and this time of year, and a lot of people going through some hardship right now. Another way is through some charitable giving. How can you — well, you know, it sounds bad to look out for yourself when you’re trying to be helpful — but what can you do to maximize really the way that it can benefit you as well when making a charitable donation.

Thiago Glieger The best way that you can give philanthropically or to any charity is if it benefits both them and you. That’s a situation where everybody wins and who doesn’t like that? There’s a couple of really smart ways that people will do these kind of charity and donating. The first is if someone is looking at their RMDs. So this time of the year, we have required minimum distributions that are gonna be applicable to anybody over a certain age. So typically that’s 73 for most people these days. And the good news is the TSP is gonna take that money out of your thrift savings account automatically. But the bad news is you pay taxes on that whole distribution. Wouldn’t it be nice if you could instead, if you are a regular contributor to a charity of sorts, maybe give some of that RMD to the charity directly. So that’s a strategy that people could do. Unfortunately, you can’t do that within the TSP, but you can do that with an IRA. But you don’t pay the taxes on it, the charity doesn’t pay taxes on, and you satisfy your RMD all at the same time. So that’s a really helpful tip that a lot of federal employees have been able to do. Key age for that is 70 and a half, okay? So this is not something that’s available to everybody. But frankly, if you’re coming up on RMDs and worried about that, you’re gonna be probably a little older anyway, so that’s big one.

Eric White Anything else that people should keep in mind as the year ends out here and looking towards next year and what is probably going to be another up and down one?

Thiago Glieger Yeah, we’ve got open season coming up here in about a month or so, Eric, right? And so I think that it would be smart for federal employees to look at some of the tools within your benefits package, because those can help save taxes as well. So, for example, if you’re not using the FSA, which is a flexible spending account, you need to go to FSA feds and really consider using that tool. You can put a few thousand dollars in it. I want to say something like $2,000 or $3,000 as a family every single year. And listen, everybody has some kind of medical expense. Even if you’re going to the doctor just once a year, you can use that money. It’s fully tax deductible. And then if you use that money for a qualified medical expense, you don’t pay any taxes on that money either. So it’s like getting tax-free healthcare services. And the important detail with the FSA is that you are going to lose the bulk of it if you don’t use it. So you always wanna make sure maybe you don’t contribute too much of it into it. Or you can use the money for all kinds of interesting qualified expenses. I’ll give you an example. Some of our clients have purchased — they had a couple of thousand bucks still left in an FSA, they were gonna lose it — they purchased a defibrillator, an AED for their household using those funds and they got it completely tax-free. You can buy Band-Aids, you can buy aspirin, all kinds other stuff, and you can see what’s qualified and what’s not online. So that’s a really nice benefit to look at for taxes at yearr end.

Eric White I think I’d buy one of those CPR dummies they look like they’re fun to play with a little

Thiago Glieger I bet you it’s probably qualified.

The post When paychecks stop and tax season looms, what moves should federal employees make? first appeared on Federal News Network.