Q. I am under Civil Service Retirement System Offset. When I took the break in service, I withdrew my CSRS funds (about $50,000; probably $60,000 or more by now). That was in 1998, so I will have to redeposit if I want it to count toward my retirement. I will be 58 next month and am considering retiring in 2013. I have been putting $600 in my Thrift Savings Plan account every payday. I can withdraw money at 59½ and not pay penalties, but it seems like I will be double-taxed. When I withdraw the money from my TSP to pay back the CSRS account, I will have to pay income tax. Then I will be taxed again when I receive my retirement check.
My TSP is the single largest amount of money that I have access to even though I have another 401(k). I understand from another post on your website that I can’t roll over the funds in my TSP to pay back my CSRS withdrawal avoiding taxes. Is there a better way to do this to eliminate some of the tax expense? I talked to a financial planner but really didn’t seem to get any guidance other than to save some money, which is what I thought the TSP was doing.
A. You could consider a TSP loan if you could pay all or most of it back before you retire. Otherwise, if you want to use TSP money to make the redeposit, you’ll have to pay the tax. You won’t be double-taxed, however, since the return of your CSRS contributions is prorated over your life expectancy and a part of each payment is exempt from taxation until all of your contributions have been returned to you.
