At most federal agencies, January 11,2026 is the beginning of the 2026 leave year. Many employees and retirees would agree that the 2025 leave year was in fact a tumultuous year with respect to federal employment and retirement. There were many employees who at the beginning of 2025 had no intention of retiring or leaving federal service but unfortunately were forced to do so by the end of 2025.
For employees who continue in federal service as the start of the 2026 leave year approaches, now is an ideal time for these employees to review and make any changes necessary with respect to their financial goals and taking full advantage of their employee benefits. The following is a list of 10 financial-to-do items that employees should consider performing during the first weeks of leave year 2026.
1. Changes to the Thrift Savings Plan (TSP). Several changes to the TSP are taking effect starting in January 2026. The first change is increased employee contribution limits. All employees - no matter their age, no matter their employment status (full-time or part-time) and no matter whether they are covered by CSRS or FERS - can contribute a maximum $24,500 (“elective deferrals”) between their first pay date in January 2026 and their last pay date in December 2026. The $24,500 is an increase of $1,000 of the calendar year 2025 limit of $23,500. Those employees who will be age 50 to 59 or older than age 63 during 2026 can contribute an additional $8,000 in “catch-up” contributions during 2026, which is an increase of $500 from 2025, for a total TSP contribution limit of $32,500.
Those employees who will be age 60, 61, 62 or 63 during 2026 (employees born between January 1,1966 and December 31, 1969) can make a “super catch-up” contribution of $11,250 (no change from 2025) for a total 2026 total contribution of $35,750.
With respect to the “catch-up” contribution, another change coming to the TSP (effective January 1, 2026) is that employees aged 50 and older during 2026 and who worked in federal service throughout 2025 and whose 2025 Social Security wages exceeded $150,000, must contribute all of their “catch-up” contributions to the Roth TSP. Affected employees may find their 2025 Social Security wages in Box 3 of their 2025 W-2 statements.
Starting January 28, 2026, employees and retirees will be allowed to convert portions of their traditional TSP to the Roth TSP. These conversions are fully taxable and any employee or retiree considering a Roth TSP in-plan conversion should consult with a qualified tax professional before performing a conversion.
2. Health, Dental and Vision Insurance. Those federal employees who during the 2025 OPM Federal benefits “open season” selected a new health insurance plan (offered through the Federal Employees Health Benefits program), and/or a dental and/or vision insurance plan, (offered through the Federal Employee Dental and Vision Insurance Program) should note that their new plans become effective January 11, 2026 (the first day of the new leave year. All employees are advised to contact their family’s doctors, dentists, ophthalmologists, optometrists, pharmacies, health care clinics and labs to notify them of any changes in the employee’s health, dental and vision insurance coverage.
3. Beware of Health-Care Flexible Spending Account (HCFSA) Spending Deadlines. Those employees who enrolled or re-enrolled in a flexible health care spending account (HCFSA) or a limited expense health care flexible spending account (LEXHCFSA) for plan year 2026, should utilize their accounts as early in 2026 as possible. Employees (and their family members) who incur qualified medical, dental and vision expenses during 2026 can be reimbursed tax-free for any qualified out-of-pocket medical, dental and vision For those employees who may be retiring or leaving federal service during 2026, the deadline for spending funds set aside in an HCFSA or LEXHCFSA is the earlier of the day an employee leaves/retires from federal service or December 31, 2026. Any unused HCFSA/LEXHCFSA funds are forfeited.
4. Review 2025 W-2 Statement. Agencies will send their employees their 2025 Form W-2 (Wages and Tax Statement) sometime during January 2026. Among the items shown on the statement are: (1) Box 1: Taxable wages; (2) Box 2: Federal income tax withheld; (3) Box 3: Social Security wages; (4) Box 4: Social Security tax (FICA) withheld: (5) Box 5: Medicare wages; (6) Box 6: Medicare tax withheld: (7) Box 12 – Code W: Agency contributions to an employee’s HSA; (8) Box 12-Code D: Employee contribution to the Traditional TSP; (9) Box 12 Code AA: Employee contribution to the Roth TSP; and (10) Box 12- Code C: Taxable cost of FEGLI life insurance.
A way for employees to check the accuracy of the amounts in these W-2 Boxes is to compare what is shown on their 2025 W-2 statement to what is shown on the employee’s last “leave and earnings” statement for 2025 (last statement issued in late December 2025) under the heading “year-to-date” for each item.
5. Review Federal and State Income Withholding for 2026. Employees are advised to evaluate their 2026 federal and state income tax withholding to determine if additional or less federal and state income taxes should be withheld from their bi-weekly payroll, ideally starting as early as possible in 2026. An employee who plans to contribute more to the traditional TSP (in which contributions are made using before-taxed salary) may want to consider reducing the amount of federal and state income taxes withhold. On the other hand, an employee who plans to contribute more to the Roth TSP (in which contributions are made with after-taxed salary) may want to consider increasing the amount of federal and state income tax withholding. Employees are advised to check with their tax advisors before taking any action on their federal and state income tax withholdings.
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6. Make a 2025 IRA Contribution. If they have not already done so, employees are encouraged to make their 2025 IRA contributions for themselves and if married, for their spouses. Maximum 2025 IRA contributions for individuals younger than age 50 as of December 31,2025 is $7,000, and $8,000 if over age 49 as of December 31, 2025. All employees and their spouses, no matter the amount of their modified adjusted gross income (MAGI) during 2025 are eligible to contribution to a non-deductible traditional IRA. There are no MAGI limitations in order to contribute to a non-deductible traditional IRA. But there are MAGI limitations for contributing to a Roth IRA. In particular, married employees filing jointly must have 2025 MAGI less than $236,000 (married employees filing separate must have MAGI less than $10,000 ) in order to make a full 2025 Roth IRA contribution. Employees filing as single or head of household must have MAGI less than $150,000 in order to make a full 2025 Roth IRA contribution . The deadline for making a 2025 IRA contribution is April 15, 2026. Employees who make their 2025 IRA contribution between now and April 15,2026 are advised to remind their IRA custodian that the IRA contribution is the year 2025 and not for the year 2026.
7. Review Life Insurance Coverage. Employees are reminded to regularly review their life insurance coverage. The purpose of the review is to make sure employees have a sufficient amount of coverage given their need for life insurance. The need for life insurance and the amount of life insurance coverage can change over time due to life events. For example, additional dependent family members, incurring a large amount of long-term debt such as a mortgage, and paying for death-related expenses including funeral costs, estate settlement costs and death taxes – estate and inheritance taxes.
8. Review Beneficiary Form Designations. Feral employees are advised to review on a regular basis their beneficiary forms. These beneficiary forms include: (1) Form SF 1152 (Designation of Beneficiary for the Unpaid Compensation and Unused Annual Leave of a Deceased Employee); (2) Form TSP-3 (TSP Beneficiary); and (3) Form SF 2823 (FEGLI Life Insurance Beneficiary Designation). In addition to these beneficiary forms being filled out, employees should make sure the beneficiary forms are up-to-date and make any necessary. For example, if a former (divorced) spouse is listed as a beneficiary, a new beneficiary needs to be named. If not already done for all beneficiary forms in which employees name primary beneficiaries, employees should also name contingent beneficiaries.
Other assets that employees may own, in which a beneficiary can be named should be reviewed and updated if necessary. This includes: (1) Individually-owned life insurance policies; (2) Traditional IRAs and Roth IRAs; (3) Bank accounts – checking accounts/savings accounts, brokerage accounts – in which a “payable on death” (POD) beneficiary designation can be made; and (3) Brokerage accounts in which a “transfer on death” (TOD) beneficiary designation can be made.
9. Review Future Social Security Retirement and Disability Monthly Benefits. By going online to https://www.ssa.gov/myaccount, an employee can review their Social Security account, online. The employee is able to download their Social Security benefits statement at any time. Among the items which can be viewed are the employee’s calculated monthly retirement benefit at age 62, at his or her full retirement age, at age 70 and any age in-between. The individual’s family and survivor benefits are also reported. Employees are also encouraged to download their most recent Social Security statement in late summer 2026 to make sure that their 2025 Social Security earnings (as reported in Box 3 of their 2025 W-2 Wage and Tax Statement) have been reported correctly to the Social Security Administration by the employee’s payroll processing agency.
10. Employees Born Before January 1,1953 and Who Retired During 2025 Must Take Their First TSP Required Minimum Distribution Before April 1, 2026. Those employees born before January 1,1953 and who retired from federal service sometime during 2025 must take their first TSP Required Minimum Distribution (RMD) no later than April 1, 2026. The TSP Service Office will compute the first year TSP RMD and send the first year RMD information to the retired employee shortly after the employee retires. The first year TSP RMD will be calculated using: (1) Only the TSP participant’s traditional TSP account balance (the Roth TSP account balance is not included in the TSP RMD calculation) as of December 31,2024; and (2) Divided by a life expectancy factor (obtained from the IRS Uniform Lifetime Table using the retired employee’s attained age during 2025.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
TSP: The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you're eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.
IRAs: 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.
Roth IRA: Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.
RMDs: RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation.
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Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.