Q: I am an employee (Federal Employees Retirement System) at a BRAC-ed installation. Sometime around September 2011, I will be fired. At 56 years old — the age at which I’ll have 29 years’ service — I can retire. I would like to cash in my Thrift Savings Plan (approximately $156,000), collect on my rolled-over leave ($54,000), collect on 50 percent of my sick leave ($17,000), collect my $25,000 and pay off all my debt. I’ll live on my pension and offset. Can I take out all my TSP funds, and what is the tax bite if I should do so?
A: Since you’ll be separating from FERS service during or following the year in which you reach age 55, you’ll be able to withdraw funds from your TSP account without penalty. The amount you withdraw will be added to your tax return as ordinary income. The tax you pay will depend upon your tax return for the year in which you take the withdrawal.
10 Comments
What makes this person think he can get any cash for his sick leave? This will neve happen. And if he has run up much debt other than mortgate or children’s college, how does he think he will be able to live on his much reduced pension at age 56. Many who take such an early pension end up going back to work as a contractor.
Mr. BRAC’d employee…HOLD UP A MINUTE.
1. There is NO payout for accrued sick leave. The only thning you get out of sick leave is the time allocated to time in service for calculations…THERE IS NO MONETARY RETURN FOR ACCRUED SICK LEAVE. So let’s leave the 17,000 out of it.
2. Your $25,000 buyout bonus is TAXABLE income, my friend. You will see, AT BEST, MAYBE $15,000 of that after taxes.
3. I’m a little unsure of how accrued annual leave works but I think the maximum accrual from year to year is 240 hours, so taking no leave and accumulating that number of hours gets you a lump sum payment at separation THAT IS ALSO SUBJECT TO TAXATION. This could get ugly very quickly.
I do not believe you answered his question. He asked to take all of his TSP and the tax consequences, I take it to mean a lump sum distribution, not a roll over. If he does take a lump sum prior to 59 1/2 he is subject to the 10% penalty on early distribution.
Federal employees cannot “cashout” their sick leave.
CSRS employees can covert their sick leave to service time and use it in the computation of their annuities.
FERS employees can convert 50% of their sick leave to service time and use it in the computation of their annuities.
Also, the individual needs to consider the tax consequences of cashing out his TSP and taking a lump sum of annual leave in the same year since this will all be added to his income for Federal tax purposes, possible throwing him into a high tax bracket.
50% of sick leave will go towards retirement calculation, not a cash pay out.
Another TSP question. If I leave before I reach my MRA, will I be able to start withdrawing from my TSP when I reach my MRA without a penalty?
thanks
While the answer does address the question asked, the initial desires expressed raised an additional question for me. My understanding of the sick leave credit is that it is a 50% contribution to the number of hours worked in the computation of time of federal service, so would not really be worth $17,000 in cash now. I would take double the $17k divided by his/her hourly rate as the number of hours this equates to, add that to the hours of service beyond the last rounded month and divide that by 2087 hours/year and multiply by 12 months to get the months of service to be added to his current time of service at 1% increase in pension per additional year of service. Is my understanding correct?
Thanks!
I am of the understanding that there is a 10% penalty for withdrawing TSP funds before age 59 1/2.
Trust your gut! 12 Trillion in Debt and rising a $Trillion with every bill they pass. I got out after 24 years. I feel sorry for those that are trapped as the Dollar becomes worthless.
I turn 59 1/2 yrs old in december of a year(my 59th bday will be in june of that same year). Basically, this allows me to start taking my TSP while I am 58yrs old(actually 58 1/2 yrs old). As long as I will be 59 1/2 during that calendar year, I can start taking the money without penalty on the first day of january(even if I am not even 59 let alone 59 1/2).
Furthermore, many federal government careers can start taking their TSP(equivalent to 401k accounts) money without penalty as long as they retire during the calendar year that they will turn 55(since some positions force retirement at the age of 57 as an example). I am 100% about the first paragraph, so i hope that answers your question. I am 99% positive about the second paragraph, so maybe someone can confirm my thinking(or correct me if I am wrong). Once again I am almost positive I am correct in the second paragraph, but if I am wrong then you must actually be 55(and not just within the calendar year of 55th bday).