Retirement Across a Fragmented Career: FERS, TSP and a Contractor 401(k)

A GovCon career rarely ends in one retirement. It ends in three. A federal or military career. A contractor career. Then consulting or board work.

Each one leaves behind a different asset with different rules. Most of the confusion I see comes from treating them as three separate stories. They are one income. The work is making them behave like one.

Here is what that looks like when it works.

A client of mine retired after 30 years as a federal employee at a defense agency. A government contractor then hired her. She earns a very good salary, and her FERS pension arrives on top of it.

She lives on the pension. She puts the maximum into the contractor’s 401(k) and invests the rest in a managed account. She moved her TSP into that same account after she left federal service. She plans to wait until 70 to claim Social Security.

The pension covers the spending. The salary funds the saving. Social Security waits. Three retirements, one plan.

Questions I help executives answer

01 “I have a FERS pension, a TSP and a contractor 401(k). Which one do I draw from first?”

The order of withdrawals sets your tax bill more than the investments inside the accounts do.

1. List the income that is guaranteed: the FERS annuity, any military pension, the FERS supplement and Social Security.
2. Subtract that total from your monthly spending need.
3. Fill the gap from traditional accounts up to the top of the tax bracket you want to stay in.
4. Take anything beyond that from Roth and taxable accounts.

The FERS basic benefit is 1 percent of your high-3 salary for each year of service, or 1.1 percent if you retire at 62 or later with at least 20 years. The supplement bridges to Social Security and ends at 62. The exception is a year with unusually low income. In that year, more from traditional accounts can cost less in tax.

02 “Can I contribute to the TSP and my contractor 401(k) in the same year?”

Yes, but the limit follows you, not the plan. For 2026 it is $24,500 across both, with an $8,000 catch-up at age 50 and older, and $11,250 at ages 60 through 63 where the plan allows it.

1. Pull your year-to-date deferrals from each plan.
2. Set payroll to stop each plan before the combined total passes the limit.
3. If you go over, ask the plan for a corrective distribution before the tax filing deadline.

Excess deferrals left in place are taxed twice. The harder part is a mid-year job change, because neither plan can see the other’s contributions.

03 “I am leaving federal service. Should I move my TSP?”

The TSP and a contractor plan differ in cost and in features. Neither is better by default.

1. Compare the expense ratio of each fund you actually hold.
2. Compare features: the TSP’s G Fund, a Roth option, loans, a brokerage window.
3. Decide whether to leave the money in the TSP or roll it.
4. If you roll it, use a direct trustee-to-trustee transfer.

The exception is a possible return to federal service. Keeping the TSP balance preserves the G Fund and the low costs you may want later.

04 “When do I start the pension, and when do I claim Social Security?”

Both start dates are hard to reverse, so model them before you choose.

1. Model two or three pension dates, each with and without the supplement.
2. Confirm FEHB eligibility. You generally need to be covered for the five years before retirement.
3. Decide the survivor benefit. A full survivor benefit reduces the annuity by 10 percent, and a partial one by 5 percent.
4. Decide when to claim Social Security. Waiting until 70 raises the monthly benefit, but it only works if other income covers the years in between.

The pension is what makes waiting possible for the client above.

05 “What do I do about taxes in a gap year?”

A gap between contracts lowers your income. That makes it a candidate for a Roth conversion.

1. Estimate taxable income for the year with no paycheck.
2. Pick the bracket you are willing to fill.
3. Convert only enough to reach the top of that bracket. The converted amount is taxed as ordinary income.
4. Pay the tax from cash outside the retirement account.

The exception is a gap that is already costing you reserve. Protect the reserve first.

Putting it on one page

I map every plan, pension and vesting date into one monthly income figure. Then the three retirements read as one. If your career spans federal, military and contractor service, book a free 20-minute call with me.

Securities and Advisory services offered through LPL Financial, a registered investment advisor. Member FINRA / SIPC. The financial professionals associated with RPM Financial Group may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.