Q: I have heard that my friends are having more taken out for federal tax on their IRA or annuity accounts. Mine remain the same. Does that mean I’ll owe money next April? I thought the Bush tax cuts were extended. A: Withholding and the actual tax you wind up owing are two different things. I can’t tell you whether you’ll owe money in April, but the more you contribute during the year, the less likely you are to have to pay later.
Monthly Archives: March, 2011
Q: I retired from federal service Jan. 1, 2010, under CSRS. In April last year I received a full distribution from my TSP account. I live in Pennsylvania and am interested to know if I’m responsible for paying state tax on my full TSP ditribution. A: My review of the Pennsylvania rules leads me to understand that TSP income is not taxed if you are retired and at least 59½ years old when it is taken. You should consult a PA/CPA to be sure, however.
Q: If an employee has a TSP loan and decides to retire prior to the loan being paid off, can the person still select a payment option out to the TSP even though there is an amount owing to the TSP? And, if the person already took a one-time withdrawal, so that is not an option, does the loan have to be paid off before a TSP payout can be made? A: Yes, you may request a post-retirement TSP withdrawal if you have an outstanding loan. The loan will be declared part of your taxable distribution for the year.
Q: I am 65 and plan to retire next year. When I turn 70½, will the dollars I have in TSP at that time be automatically included in the Federal Tax “Required Minimum Distribution” (RMD) calculation? A: I’m not sure that I understand your question. The TSP will remind you before your withdrawals must begin, but you must initiate the withdrawals. The TSP will automatically calculate the distribution amount if you select monthly payments based on your life expectancy.
Q: I work for USDA. I will retire at the end of December 2012 as a GS-14, Step 7, $126,251 – FERS. I am taking full Social Security. I was born in June 1943. My monthly Social Security entitlement is about $2,350, and I have 25 percent taken out for federal taxes. I am investing in the L-2020 401(k) TSP fund. I plan to keep my money in the 401(k) after I retire. Is keeping my retirement savings in the L-2020 fund in retirement a good strategy? I figure the fund is diversified nicely with conservative and aggressive funds. I…
Q: When the Roth TSP is available in 2012, I already have Roth IRA with Scottrade. Can I transfer all my money to the Roth part of the TSP to take advantage of the low expense fee? A: While this is a good idea, the option to do so has not been offered yet. You’ll have to wait and see.
Q: How would a protracted government shutdown impact the repayment of a general purpose TSP loan? Will I need to mail in a check to avoid a taxable distribution or will TSP wait until we’re getting paid again? I can’t imagine I’m the only one who won’t be able to make that payment while stretching a last paycheck out indefinitely. A: You will have to continue making payments unless an exception is offered.
Q: I recently retired at age 50 under the FERS/Air Traffic Controller special provisions. I would like to use my TSP funds with the full withdrawal series of monthly payments option calculated by the TSP based on the IRS Life Expectancy Table. Does this qualify with the IRS as a “substantially equal payment over your life expectancy”? Will these payments be exempt from the 10 percent IRS early withdrawal penalty? A: Yes, this distribution option will qualify for the SEPP exemption to the early withdrawal penalty. You will need to continue these payments for five years, or until you reach…
Q: I retire April 30 and plan to start monthly payment withdrawals from my TSP immediately to supplement a 31-year LEO/CSRS pension. I will withdraw no more than 5 percent in order to maintain, and maybe even grow, my balance. What TSP allocation amounts do you recommend for retirees to keep a steady flow of income? A: There is no single allocation that will magically support a steady income stream. The best method is to select the allocation that will most likely support your needs going forward, then monitor your progress and adjust the allocation when necessary to either reduce…
Q: I am CSRS with more than 30 years of service, and if I take a VERA before I reach age 55, can I withdraw money from my TSP without the 10-percent penalty? A: Unless you separate from federal service during or after the calendar year in which you reach age 55, or qualify for another exception under IRS rules, you will incur the 10-percent early withdrawal penalty. Your service time or retirement terms have no effect on the penalty.