Don’t get surprised at tax time: Look at your spending and income for 2025
Tax season sneaks up on many of us and if you’re not planning ahead, April could bring some surprises. No matter where you’re at (working or retired) it’s smart to look at your income and spending for 2025 now, rather than in February or March. Proactive planning can save you money, reduce stress, and help you make the most of your financial options.
If you’re working
If you’re actively working in 2025, here are some things to consider that could help you manage your tax liability.
Review your pretax vs. Roth DCP contributions
Check your tax bracket. If you’re near the top, consider increasing your pretax DCP contributions to lower your taxable income for your 2026 income.
If you’re on the lower end of the tax bracket, it might be a smart time to convert some pretax DCP funds to Roth. You’ll pay taxes now at a lower rate. Then in retirement, your withdrawals will be tax-free. And you don’t have to convert all of your pretax funds now. You could make small conversions over many years. This could help spread out your tax burden more efficiently over time. Use the pretax to Roth form to make the conversion.
Check for tax credits
Many people miss out on tax credits simply because they don’t know if they qualify. Talk to a tax professional about what’s available. Some tax credits include: education credits, earned income credits, energy-efficient home upgrades.
Healthcare expenses: FSA or DCAP
Review your medical expenses and dependent care costs. If they’re adding up, it may be worth enrolling in a Flexible Spending Account (FSA) or Dependent Care Assistance Program (DCAP) for 2026. These plans can lower your taxable income next year and help cover essential costs.
Charitable donations
If you itemize your deductions and your donations exceed the standard deduction, charitable giving can be a great way to reduce your taxable income. Just be sure to keep detailed records.
Understand your paycheck
A lot of us get surprised at tax time because we only look at our gross salary and forget about withholdings, benefits deductions, and other pre-tax contributions. Make it a habit to review your pay stubs and make sure everything aligns with your financial goals.
Leaving the workforce?
If you’re retiring soon, you may be able to cash out unused leave and roll it into your Deferred Compensation (DCP) account. This can help reduce your taxable income in the year you retire and pad your retirement savings.
If you’re retired
Tax planning doesn’t stop once you retire. In fact, staying on top of your income and spending is just as important in retirement.
Review your pretax vs. Roth DCP contributions
If you’re on the lower end of your tax bracket, it might be a smart time to convert some pretax DCP funds to Roth. You’ll pay taxes now at a lower rate. Then, your withdrawals later, will be tax-free. And you don’t have to convert all your pretax funds now. You could make small conversions over many years. This could help spread out your tax burden more efficiently over time. Use the pretax to Roth form to make the conversion.
Review your W-4 and withholdings
Make sure you’re withholding enough from pension payments, Social Security, or investment accounts. If you don’t withhold enough, it can result in a tax bill and potential penalties next April.
Plan for Required Minimum Distributions (RMDs)
If you’ve reached RMD age (73 in 2025 for many retirees), you’re required by the IRS to withdraw a percentage of your funds from any pretax account. This includes DCP or Plan 3 investment accounts as well as any IRAs or 401(k)s. The DRS record keeper, Voya Financial, will send you an RMD check in November and a 1099-R tax form in February if you have a Plan 3 or DCP account. For more information, view the DRS withdrawals page, or a DRS podcast episode about RMDs.
Check your cash flow
Take a close look at your accounts. Are you holding enough cash to meet expenses without having to sell investments? Consider consolidating accounts if you’re juggling too many, it can make things easier to manage.
Final thoughts
No matter your stage of life, the key message is simple: don’t wait until tax time to think about taxes. Look at your income, spending, and savings options now, so you can make smart moves that benefit you both today and down the road.
