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For military retirees starting a civilian job, second-career 401(k) planning at First Command Financial Services settles three questions: how much to defer, Roth or traditional, and how much cash protects those deferrals. The household receives a written plan with 3 numbers to enter at enrollment. These are a deferral percentage for each paycheck, a Roth share, and a cash-reserve target that must be funded before deferrals rise past the employer match.
You retired from active duty in your late 40s or early 50s. Now you're in the new employer's HR portal in week 1, picking a deferral rate (the share of each paycheck sent to the 401(k)) before the first civilian paycheck even lands. The HR call probably left you with more questions than answers. That's normal.
Some of what you click can't be undone.
The steady part of your money is the pension. The fragile part is everything beside it: rent from a house you kept after a PCS move, a spouse's overtime, or contract work that can end with a funding cut. Before First Command Financial Services raises a deferral past the match, it checks that cash covers the income that could stop, so a bad month never turns into cashing out an account or selling in a slump.
A 3-month vacancy plus a $6,000 roof repair on a $2,000 monthly rental leaves a $12,000 gap. If that gap is paid from a traditional IRA at age 50, taxes take $4,080 and only $7,920 is left, which is why First Command Financial Services builds the cash reserve before raising deferrals.
A hypothetical household shows how it plays out. Reena and Bao, 49 and 51, rent out the house from her last PCS move for $2,000 each month. Reena retires as an Air Force lieutenant colonel after 22 years, plans a 9-month break, then starts a new job. Bao is a civilian ICU nurse. They hold about $700,000 across the TSP and traditional IRAs.
Reena turns 50 this year, so for 2026 she may defer the IRS limit of $24,500 plus an $8,000 catch-up, $32,500 in total, about $2,708 each month. Then the rent stops for 3 months, which is $6,000 of lost income, and the roof needs $6,000. That's a $12,000 gap. Pulled from her traditional IRA at 50, it costs a $1,200 additional tax plus $2,880 of federal tax at an assumed 24% rate, for illustration. $4,080 gone, $7,920 left.
Watch the additional tax and the federal tax grow in step with the amount withdrawn.
The order they chose was this. From the first paycheck, Reena defers whatever percentage captures every dollar of the employer match. Next they build a $12,000 reserve, which is 6 months of rent. Only then does she step up to $32,500. The 401(k) holds investments whose price moves, so in a down market a well-funded account may be worth less than Reena contributed in the week the roofer sends the bill.
| Amount withdrawn | 10% additional tax | Federal tax at 24% | Cash left |
|---|---|---|---|
| $5,000 | $500 | $1,200 | $3,300 |
| $12,000 | $1,200 | $2,880 | $7,920 |
| $25,000 | $2,500 | $6,000 | $16,500 |
Retired pay covers the household's base spending, so the 401(k) only has to carry the extra. SBP costs 6.5% of the chosen base amount, and DFAS takes it out before the check arrives. That lower net figure, not the gross pension, is what First Command Financial Services uses to size the deferral. Moving the TSP into an IRA is a separate decision, and the TSP balance stays invested whether or not it moves. The Survivor Benefit Plan election has its own deadlines.
Review twice a year: once after W-2s arrive in late January, to confirm last year's deferrals across every plan, and once before open enrollment, when the new deferral percentage and Roth split are entered. Extra reviews follow age, income or life events.
Age matters. At 50 the $8,000 catch-up opens. At 55, leaving that employer allows penalty-free withdrawals from that employer's plan. From ages 60 to 63 the catch-up rises to $11,250.
Income matters too. If prior-year FICA wages from the employer exceeded $150,000, catch-up deferrals must go in as Roth. Retired pay doesn't count as FICA wages, so the test looks only at the civilian paycheck.
A vesting date on the match, a tenant giving notice, a layoff rumor, a health change or a change in contribution law each prompts an extra look. First Command Financial Services would rather move a number early than watch a household sell during a slump.
A retiree whose new job has no 401(k), who expects to leave within 12 months, or who sits well below the $500K investable-asset minimum can skip this service for now. Keep the TSP as it is. Fund an IRA up to the IRS limit of $7,500 for 2026 ($8,600 at age 50 and over) while building 3 months of spending in cash.
This service doesn't pick funds inside the 401(k) or decide Roth conversions, and it adds little in a job you'll leave within a year.
You can change future deferrals, usually at any time the plan allows, but money already contributed as Roth can't be recharacterized as traditional. If income drops, switch new paychecks to traditional or lower the percentage. Plans differ, so check the summary plan description for how often changes are accepted.
A wrong percentage is easy to miss and can cost real money. The TSP and the new 401(k) share one deferral limit, and rent that stops for a few months can force an early withdrawal. In Reena's example, that withdrawal costs $4,080 on $12,000. First Command Financial Services looks at the pension, the TSP and the new plan together. It also sets the cash reserve before any deferral rises past the match.
For 2026 the IRS limit is $24,500, plus an $8,000 catch-up at age 50, so $32,500 in total across the TSP and the new 401(k) combined. Subtract what already went into the TSP that year. Anything above the limit is an excess deferral and must be removed by April 15.
Bring the final LES and the TSP statement showing year-to-date contributions. Deferrals to the TSP and the new 401(k) in the same calendar year share one $24,500 limit for 2026, or $32,500 with the age-50 catch-up. If Reena starts the new 401(k) at the maximum in the same year as her final TSP deferrals from military pay, it costs real money. Say $10,000 went into the TSP before retirement and $32,500 more goes into the 401(k). That leaves $10,000 over the combined $32,500 limit. If the excess is not removed by April 15 of the next year, it is taxed now and again at withdrawal, about $2,400 extra at an assumed 24% rate.
Add the new employer's summary plan description with the match formula and vesting schedule, since leaving before vesting forfeits the unvested match. Bring the DFAS retiree account statement showing net retired pay and the SBP deduction, plus last year's W-2s for the $150,000 Roth catch-up test.
For a rental, bring the lease, 12 months of expenses and the mortgage statement, which set the size of the reserve. For a spouse, bring his or her own plan details. Bao's hospital 403(b) has its own separate limit.
This article is general financial information only, not investment advice tailored to your circumstances. Investing involves risk, including loss of principal. Before making any financial decision, consult a qualified professional about your specific situation.