Meet David, a 58-year-old city police officer with 30 years of service. Like many Law Enforcement Officers' and Fire Fighters' (LEOFF) 2 members, David has done an excellent job saving but worries about the tax bill waiting for him in retirement. With potentially higher federal tax brackets in the future, the timing of Roth conversions could significantly impact his retirement income.
David is wondering if he should convert to Roth before retiring from his law enforcement job.
He earns $115,000 annually and has $950,000 in his 457(b) plus $200,000 in a taxable brokerage account. David plans to retire at 58 and can delay his LEOFF 2 pension for one year by living off his brokerage funds, creating an even better conversion opportunity. His LEOFF 2 pension will provide about $6,230 monthly starting at age 59.
Core Principles
Before diving into David's strategy, let’s understand these fundamental principles:
1. Tax Rate Arbitrage Convert when your current tax rate is lower than your expected retirement tax rate. This is often the sweet spot for pre-retirees².
2. Time Horizon Matters Roth conversions work best when you have at least 5 years before needing the money, allowing tax-free growth to compound³.
3. Required Distribution Planning Traditional retirement accounts force distributions at age 73, but Roth IRAs never require withdrawals during your lifetime⁴.
4. Medicare Impact Awareness Large conversions can increase your income and potentially raise Medicare premiums two years later4.
David's Roth Conversion Blueprint
The Pre-Pension Window Strategy
David's optimal conversion period includes one year with no pension income (age 58) followed by eight years with pension income (ages 59-66) before claiming Social Security at 67. This creates both a perfect conversion year and an extended moderate-income period.
David's Income Timeline:

• Age 58: Minimal taxable income (living off taxable brokerage account)
• Ages 59-66: $74,750 annual LEOFF 2 pension ($6,230 × 12 months)
• Age 67+: Pension plus Social Security

Key considerations for David:

• At age 58, he can convert up to the full 12% bracket limit
• From ages 59-66, his income includes pension but leaves some 12% bracket space
• He has 9 years total before Social Security increases his tax bracket
• His taxable brokerage account provides bridge income without creating taxable events

Calculating the Sweet Spot
David should focus on maximizing the 12% tax bracket opportunity rather than moving into higher brackets. This approach ensures predictable tax costs while still achieving substantial conversion benefits.
The key to David's strategy is understanding how the standard deduction creates conversion space. For married filing jointly in 2025, the standard deduction is $30,000, and the 12% bracket extends to $96,950 of taxable income. This means David and his spouse can have total income of $126,950 ($30,000 + $96,950) before hitting the 22% bracket.
David's Tax Bracket Math:

• Age 58: No pension income, so he can convert up to $126,950 and stay entirely in the 12% bracket. This assumes he can draw from his taxable brokerage account for monthly living costs with virtually no tax impact.
• Ages 59-66: Pension income of $74,750 leaves $52,200 of available space ($126,950 - $74,750)
• Strategy: Fill the available space each year without exceeding the 12% bracket. In addition, the Medicare IRMAA (additional Medicare premiums) doesn’t begin until the MFJ adjusted gross income reaches $212,000.

David's Conservative Conversion Strategy:

• Age 58: Convert $126,950 (maximizing available 12% bracket space)
• Ages 59-66: Convert $52,200 annually for 8 years (using remaining space after pension)
• Total conversions: $544,550 over 9 years
• Tax Impact: Total tax on the conversions over 9 years is $61,269 (see breakout below).

 
Coordinating with Pension Benefits
As a LEOFF 2 member, David can retire and delay his pension start date, which creates a perfect conversion opportunity. His taxable brokerage account provides bridge income during his first year of retirement without creating additional taxable income.
David's LEOFF 2 Coordination:

• Delay pension start until age 59 to maximize conversion opportunity
• LEOFF 2 pension: $6,230 monthly starting at age 59
• The delayed start creates one year of minimal taxable income

Planning considerations specific to David:

• His brokerage account provides income stability during the first conversion year
• Delaying pension for one year creates maximum conversion flexibility
• LEOFF 2's pension delay option is often overlooked but extremely valuable for tax planning

Implementation and Tax Management
David will front-load his conversions to take advantage of the no-pension year, then maintain consistent conversions that maximize the 12% bracket thereafter.
David's Execution Timeline:

• Age 58: Execute $126,950 conversion in November, live off brokerage account
• Ages 59-66: Execute $52,200 conversion each November, start pension benefits
• Quarterly: Make estimated tax payments  on the estimated conversion tax  to avoid penalties
• November each year: Review actual income and confirm staying within 12% bracket before doing the conversion

David's Annual Tax Impact:

• Age 58: $126,950 conversion, $11,157 federal tax ($2,385 at 10% + $8,772 at 12%)
• Ages 59-66: $52,200 conversion, $6,264 federal tax annually on the conversion
• Total 9-year tax cost: $61,269
• Effective tax rate: 11.25% on taxable conversion amounts

Should You Do Roth Conversions Before Retiring?
For most LEOFF 2 members, the answer is no—Roth conversions before retirement generally don't make sense. While you're working and earning $115,000 like David, you're likely in the 22% tax bracket or higher. Converting during your peak earning years means paying higher tax rates on the conversion, which defeats the purpose of tax arbitrage.
The magic happens after retirement when your income drops significantly. David's case demonstrates why waiting makes sense: his taxable income drops from over $115,000 while working to just $44,750 from his pension (after the standard deduction). This dramatic income reduction creates the opportunity to convert at the much lower 12% tax rate.
The key insight is that "before retiring" means different things for different people. For LEOFF 2 members, the optimal conversion window typically begins immediately after retirement but before claiming Social Security—not while still working and earning a full salary.
Remember, Roth conversion decisions are permanent. Work with qualified professionals who understand both federal tax law and LEOFF 2 retirement systems to ensure these strategies align with your complete financial picture.

​Sources and Resources

1. Department of Retirement Systems - LEOFF 2 Information
2. IRS Publication 590-A - Contributions to Individual Retirement Arrangements
3. IRS - Retirement Plan and IRA Required Minimum Distributions FAQs
4. Social Security Administration - Medicare Costs

Maria, a 58-year-old Washington State Department of Transportation supervisor, has diligently saved $400,000 across her 457(b) and Roth IRA accounts. Her husband Tom works in the private sector with his own 401(k) worth $300,000 and will retire around the same time. With retirement just three years away, they're facing a common concern:
"We've done great at saving, but how do we withdraw this money without getting crushed by taxes?"
If you're a Washington State public employee approaching retirement, you're in a unique position. Unlike most retirees, you won't pay state income tax on your withdrawals¹.
However, federal taxes can still take a significant bite out of your nest egg if you're not strategic about your withdrawal approach.
Core Tax-Smart Withdrawal Principles
Understanding these fundamental principles will help you keep more of your hard-earned money:
1. Leverage Tax Diversification Having money in different tax buckets (traditional, Roth, and taxable accounts) gives you flexibility to manage your tax bracket each year².
2. Fill Your Tax Brackets Strategically Rather than withdrawing randomly, intentionally "fill up" lower tax brackets before moving to higher ones³.
3. Take Advantage of Washington's Tax-Free Status Since Washington has no state income tax, focus entirely on federal tax optimization without worrying about state tax complications⁴.
4. Consider Required Minimum Distributions (RMDs) Plan ahead for RMDs starting at age 73, which can push you into higher tax brackets if not managed properly⁵.
5. Coordinate All Income Sources Your DRS pension, Social Security, and investment withdrawals should work together as part of a comprehensive tax strategy.
Your Tax-Smart Withdrawal Strategy
Step 1: Create Your Annual Income Blueprint
Start by mapping out all your income sources for each year of retirement. This includes your DRS pension, Social Security (when you claim it), and any part-time work income.
Let's follow Maria and Tom through this process. Maria receives $48,000 annually from her PERS 2 pension when she retires at 65. Tom plans to claim Social Security at 65 for $24,000 per year (reduced from full retirement age), and Maria will claim hers for $22,000 at the same age. Together, they need an additional $25,000 annually from their combined retirement savings to maintain their lifestyle.
Key considerations:

• Calculate your total income needs minus guaranteed income sources (like Maria's $48,000 PERS 2 pension)
• Identify the gap that investment withdrawals must fill (Maria and Tom need $25,000 annually starting at retirement)
• Plan for inflation adjustments over time

Step 2: Optimize Your Tax Bracket Management
The goal is to stay within favorable tax brackets while meeting your income needs. For 2025, the 12% federal tax bracket extends to $96,950 (taxable income) for married couples filing jointly⁶.
Maria and Tom both claim Social Security at 65, receiving reduced benefits but providing immediate income. Since they're claiming at 65 instead of waiting until their full retirement age of 67, their combined Social Security is $46,000 instead of the potential $53,000 they would receive at full retirement age. Claiming at 65 results in approximately a 15% reduction from their full retirement age benefits. However, this early claiming strategy reduces their need to withdraw from retirement accounts during those early retirement years.
Strategic approaches:

• Use Roth withdrawals when you're in higher tax brackets
• Fill lower brackets with traditional account withdrawals
• Consider tax-loss harvesting in taxable accounts

Step 3: Implement the "Bucket Strategy"
Organize your withdrawals by creating three distinct buckets based on tax treatment:
Bucket 1 - Tax-Free (Roth accounts) Use these when you're in higher tax brackets or need extra cash without tax consequences. Maria uses her Roth IRA strategically to avoid pushing their household into higher brackets.
Bucket 2 - Tax-Deferred (457(b), 401(k), traditional IRAs) Withdraw from these to "fill up" lower tax brackets efficiently. Both Maria's 457(b) and Tom's 401(k) fall into this category.
Bucket 3 - Taxable Accounts These offer flexibility with capital gains treatment and can provide tax-efficient income through strategic selling. Maria and Tom's joint investment account provides this flexibility.
Step 4: Time Your Social Security Claiming
Your Social Security claiming strategy directly impacts your withdrawal needs and tax situation. Delaying Social Security can reduce the amount you need to withdraw from retirement accounts.
Maria and Tom both claim Social Security at 65, receiving reduced benefits but providing immediate income. Since they're claiming at 65 instead of waiting until their full retirement age of 67, their combined Social Security is $46,000 instead of the potential $53,000 they would receive at full retirement age. However, this early claiming strategy reduces their need to withdraw from retirement accounts during those early retirement years.
Consider these factors:

• Break-even analysis for early claiming versus delayed claiming
• Impact on overall tax bracket when combining pension and Social Security income
• Coordination with PERS 2 pension timing and withdrawal strategy

Step 5: Plan for Required Minimum Distributions
Starting at age 73, you'll be required to withdraw minimum amounts from traditional retirement accounts. These RMDs can significantly impact your tax situation if not planned for properly. The RMD age is increasing to 75 over time.
Planning strategies:

• Consider Roth conversions before turning on Social Security and consider delaying your pension just 1 year if possible to create a no or low income year resulting in an ideal time to do Roth conversions.
• Spend down traditional accounts strategically before RMDs begin at 73
• Use qualified charitable distributions if you're charitably inclined

Maria and Tom's Complete Strategy
Now let's see how all these strategies come together in their comprehensive retirement plan:
Their Situation:

• Maria's 457(b) traditional: $350,000
• Maria's Roth IRA: $50,000
• Tom's 401(k): $300,000
• Combined taxable investments: $75,000

Income Timeline:

• Age 65+: Maria's PERS 2 pension ($48,000) + Social Security ($46,000 combined) + investment withdrawals ($25,000) = $119,000 total

Their Withdrawal Strategy:
Phase 1 (Ages 65-73): With $94,000 in pension and Social Security income, Maria and Tom need $25,000 annually from investments. They withdraw $15,000 from traditional accounts (split between Maria's 457(b) and Tom's 401(k)) to stay in favorable tax brackets, plus $10,000 from Maria's Roth IRA.
Phase 2 (Ages 65-72): During this period, Maria and Tom strategically convert $10,000 annually from traditional accounts to Roth accounts while managing their overall tax bracket.
Phase 3 (Age 73+): RMDs begin, but Maria and Tom's earlier strategic planning has positioned them well. They continue coordinating withdrawals between all account types to manage their tax bracket effectively.
This coordinated approach minimizes Maria and Tom's lifetime tax burden while ensuring steady income throughout retirement, taking advantage of both Maria's public sector benefits and Tom's private sector savings.
Remember, every situation is unique. While these strategies provide a solid foundation, your specific circumstances may require adjustments to optimize your tax situation.

​Sources and Resources

1. Washington State Department of Revenue - Retirement Income
2. IRS Publication 590-B - Distributions from Individual Retirement Arrangements
3. Department of Retirement Systems - Planning Your Retirement
4. Social Security Administration - Retirement Benefits
5. IRS - Retirement Plan and IRA Required Minimum Distributions FAQs

Meet Sarah, a married Seattle firefighter with 28 years of service. At 53, she's planning to retire at 55 with a solid financial foundation: a LEOFF 2 pension, $650,000 in her 457(b) plan, and $180,000 in a Roth IRA. But Sarah's biggest concern isn't fighting fires anymore—it's figuring out how much Uncle Sam will take from her and her spouse's retirement income.
Understanding retirement taxation is crucial for Washington State employees like Sarah because your tax situation changes dramatically once you stop working. Unlike your working years where taxes were straightforward, retirement brings multiple income sources with different tax rules. Getting this right can save you thousands of dollars annually.
Core Tax Principles for Washington Retirees
Before diving into Sarah's strategy, here are the fundamental tax principles every Washington public employee should understand:
1. Washington Has No State Income Tax Your pension, Social Security, and retirement account withdrawals won't face state taxation—a significant advantage over retirees in other states.¹
2. Federal Taxes Still Apply While you'll avoid state taxes, federal income tax rules remain the same for most retirement income sources.²
3. Different Income Sources Have Different Tax Rules Your pension is fully taxable, Social Security may be partially taxable, Roth accounts are tax-free, and with taxable accounts the gains may be subject to favorable capital gains rates.³
4. Required Distributions Begin at Age 73 You must start taking money from traditional retirement accounts at age 73, whether you need it or not. This age will go up to 75 over time.⁴
5. Tax Planning Becomes More Important With multiple income sources and potential tax bracket changes, strategic planning can significantly impact your after-tax income.
Sarah's 5-Step Retirement Tax Strategy
Step 1: Understanding Pension Taxation
Sarah's LEOFF 2 pension will provide her with approximately $8,750 monthly ($105,000 annually) - 50% survivor option selected based on her 30 years of service at retirement and final average salary of $175,000. This entire amount is considered ordinary income and is fully taxable at the federal level.
Here's what this means for Sarah:

• Her $105,000 pension gets added directly to her taxable income
• Seattle FD firefighters don’t pay into Social Security (very common for WA Firefighters)

Sarah's pension tax impact: Filing jointly with her spouse, and assuming this pension income puts them in the 22% federal bracket ($145,000 in total income, standard deduction taken), they'd owe about $15,000 annually in federal taxes.
Step 2: Navigating Social Security Taxation
Unlike most retirees, Sarah won't receive Social Security benefits because firefighters in Washington typically don't pay into the Social Security system. This creates a unique situation where her family's retirement income will come primarily from her pension, retirement savings, and any income her spouse may have.
Sarah’s spouse may be eligible for Social Security benefits so Sarah may be eligible for spousal benefits. This component must be factored into their calculation.
Social Security will likely be taxable up to 85% for Sarah and her spouse, however depending on your situation, Social Security may be taxable at 0%, 50% or 85%.
Step 3: Managing Retirement Account Withdrawals
Sarah's $650,000 in her 457(b) plan represents her biggest tax planning opportunity. Every withdrawal will be taxed as ordinary income, but she has flexibility in timing and amounts.
Key advantages for Sarah and her spouse:

• No 10% early withdrawal penalty before 59.5 for 457(b) plans⁵
• Sarah can start withdrawals immediately at retirement without penalty
• Without Social Security to coordinate until later in retirement, they have more flexibility in managing tax brackets
• Strategic withdrawals can help optimize their lifetime tax situation

Sarah's withdrawal strategy: She plans to withdraw $40,000 annually from her 457(b) plan to supplement her other income, adding this amount to her taxable income each year.
Step 4: Planning for Required Minimum Distributions
At age 73, Sarah will be required to take minimum distributions from her 457(b) plan. Based on her current balance, her first RMD would be approximately $24,528 ($650,000 ÷ 26.5 life expectancy factor). However, that’s almost 20 years away. If she doesn’t do anything with her 457(b), it could double or more, significantly increasing her tax liability.
Sarah's RMD challenge: By age 73, they'll be receiving:

• LEOFF 2 pension: $105,000
• Required 457 withdrawal: $24,528
• Total: $129,528 (before considering growth and any spouse income)

This could push them into a higher tax bracket when Sarah is older and they have less flexibility.
For Sarah, RMD’s will likely not be a significant concern because she is already withdrawing from her 457(b). However, it is incredibly important to be aware of RMD’s and think about these not just for Sarah, but also for her spouse.
Step 5: Optimizing with Roth Accounts
Sarah's $180,000 Roth IRA is her secret weapon for tax planning. These funds grow tax-free and can be withdrawn without affecting her tax bracket or Social Security taxation.
Sarah's family Roth advantage:

• No required minimum distributions during her lifetime
• Withdrawals don't affect their tax bracket
• Perfect for large expenses without bracket jumping
• Can provide tax-free income to balance Sarah's taxable pension

Your Action Plan
Ready to optimize your retirement taxes like Sarah? Here's your next steps:

1. Calculate your estimated retirement income from all sources using DRS online calculators
2. Review your current retirement account allocation between traditional and Roth options
3. Consider increasing Roth contributions in your working years if you're in a lower bracket
4. Schedule a consultation with a tax professional familiar with Washington State employee benefits
5. Run tax projections for different retirement scenarios and withdrawal strategies

Remember, tax planning isn't a one-size-fits-all approach. Your optimal strategy depends on your specific income sources, family situation, and retirement goals.

​Sources and Resources

1. Washington State Department of Revenue - No State Income Tax
2. IRS Publication 590-B - Distributions from Individual Retirement Arrangements
3. Social Security Administration - Taxation of Benefits
4. IRS - Retirement Plan and IRA Required Minimum Distributions FAQs
5. Washington State Department of Retirement Systems - Deferred Compensation
6. IRS Publication 915 - Social Security and Equivalent Railroad Retirement Benefits

Meet Sarah, a 58-year-old city manager earning $200,000 annually. She has $500,000 in her deferred compensation account and plans to retire at 62. Sarah just received her annual benefits statement and wants to make sure she's maximizing her final working years to secure her retirement goals. Like many Washington State local government employees, Sarah participates in a 457(b) deferred compensation plan but isn't sure how to maximize its potential in her final working years.
For Washington Department of Retirement Systems (DRS) members approaching retirement, your deferred comp plan represents one of your most powerful tools for securing financial independence. The decisions you make in these final working years can add tens of thousands of dollars to your retirement nest egg.
Core Principles for Deferred Comp Success
Understanding these fundamental principles will guide your strategy for maximizing your deferred compensation benefits:
1. Take Advantage of Catch-Up Contributions
Employees age 50 and older can contribute an additional $7,500 annually beyond the standard limit, boosting total contributions to $31,000 in 2025.¹
2. Leverage the Special 457(b) Catch-Up Rule
Unlike other retirement plans, 457(b) plans offer a unique "final three years" catch-up that can double your contribution limit.²
3. Understand Washington State's Tax Benefits
Since Washington has no state income tax, your deferred comp contributions only reduce your federal tax burden, making strategic timing crucial.³
4. Plan Asset Allocation Based on Time Horizons
Map out what funds you'll need over the next five years and keep those amounts out of the stock market to protect against volatility.
5. Consider Guardrails for Withdrawal Strategy
This dynamic approach adjusts withdrawal rates based on portfolio performance, helping preserve your savings during market downturns.⁴
Your 5-Step Strategy to Maximize Deferred Comp
Step 1: Calculate Your Maximum Contribution Capacity
Start by determining how much you can realistically contribute. The 2025 basic limit is $23,500, but if you're 50 or older, you can add $7,500 for a total of $31,000.
For DRS members in their final three years before retirement, the special catch-up rule allows you to contribute up to twice the annual limit. This means you could potentially contribute $47,000 annually if you haven't maximized contributions in previous years.
Sarah's situation: At 58, she's eligible for the age 50+ catch-up and is already maximizing it by contributing $2,580 monthly ($31,000 annually). Since she's already at the maximum for her age group, her biggest opportunity lies in the special three-year catch-up provision starting at age 59.
Step 2: Choose Between Catch-Up Options Strategically
You can't use both catch-up provisions simultaneously, so choose the one that benefits you most:

• Age 50+ catch-up: Adds $7,500 annually, easier to manage ($31,000 total)
• Final three years catch-up: Potentially doubles your contribution limit ($47,000 total)
• Best choice: Calculate which provides the higher contribution amount for your situation

Sarah's decision: She calculates that the age 50+ catch-up allows $31,000 annually, which she's already doing, while the special catch-up in her final three years would allow $47,000. She chooses to use the special catch-up rule starting at age 59, contributing $47,000 in each of her final three working years—an additional $16,000 annually.
Step 3: Optimize Your Investment Mix Using Time-Based Allocation
Rather than using traditional age-based allocation, map out your spending needs for the next five years and keep those funds in stable investments:

• Years 1-5 expenses: Keep Year 1 in money market funds, Years 2-5 in high-quality short-duration bonds
• Years 6+ expenses: Can remain in growth investments like stock funds
• Sarah's strategy: She calculates needing $37,000 annually from deferred comp for her first five retirement years, so she keeps $37,000 in money market funds, $148,000 in short-duration bonds, and the remainder in a diversified stock portfolio

This approach protects your near-term spending from market volatility while allowing long-term growth for later retirement years.
Step 4: Plan Your Withdrawal Strategy Using Guardrails
Guardrails provide a flexible withdrawal approach that adjusts based on your portfolio's performance:

• Initial withdrawal rate: Start with 4-5% of your portfolio value – extremely dependent on your unique situation and income needs
• Upper guardrail: If your portfolio increases by 20%, increase your spending by 10%
• Lower guardrail: If your portfolio decreases by 20%, decrease your spending by 10%

Step 5: Take Advantage of Washington State Resources and 457(b) Benefits
The state provides valuable tools, and 457(b) plans offer unique advantages:

• No early withdrawal penalties: Unlike 401(k) plans, you can access funds immediately upon retirement before 59.5
• Online calculators: Use DRS planning tools to model different scenarios
• Educational seminars: Attend retirement planning workshops offered statewide

Case Study: Sarah's Complete Strategy
Starting point: Sarah, age 58, has $500,000 in deferred comp, earns $200,000, currently contributes $31,000 annually.
Years 59-61 (Final three years): Using the special catch-up rule, Sarah contributes $47,000 annually instead of her current $31,000. With 6% average returns, her balance grows from $500,000 to approximately $740,000 by age 62.
Asset allocation at retirement:

• $37,000 in money market funds (Year 1 withdrawals)
• $148,000 in high-quality short-duration bonds (Years 2-5 withdrawals)
• $555,000 in diversified stock funds for long-term growth

Withdrawal strategy: Starting with $37,000 annually (5% of $740,000), Sarah uses guardrails to adjust based on portfolio performance. This provides flexibility while protecting her principal during market downturns.
Tax coordination: Since Sarah will receive her PERS pension and eventually Social Security, she times her deferred comp withdrawals to minimize her overall tax burden, potentially keeping her in lower tax brackets.
Your Action Plan
Take these specific steps to maximize your deferred comp in your final working years:

1. Calculate your catch-up eligibility and determine which option allows higher contributions
2. Map out your first 5 years of retirement expenses and adjust your asset allocation accordingly
3. Learn about guardrails and how to implement this withdrawal strategy
4. Increase your contributions to the maximum sustainable level
5. Set annual reminders to review and adjust your strategy as circumstances change

Remember, everyone's situation is unique. Consider consulting with a financial advisor familiar with Washington State employee benefits to create a personalized strategy.
Sources and Resources

1. IRS 457(b) Contribution Limits
2. Washington State Deferred Compensation Program
3. DRS Retirement Planning Resources
4. Guardrails Strategy for Retirement Income
   
5. DRS Contact Information and Counseling Services