TSP withdrawal and taxes


Q. I recently asked to withdraw my Thrift Savings Plan account. I understand that they automatically withhold 20 percent of the balance. I live in Pennsylvania and was wondering if I will have to pay more taxes even though TSP withheld the legal limit of the 20 percent. I am trying to figure out if I should be expecting a bill from the Internal Revenue Service once I file my taxes for 2012. Maybe I’m overthinking this, but I’m trying to buy my first house and heard rumors that the money can be used for this without penalty.

A. The 20 percent withholding is only a deposit against your federal tax liability, which won’t be calculated until you file your tax return for the year. The only way to know how much you will owe, or be refunded, is to file your return. If you’re concerned about a tax bill in April, you’ll need to run your tax return for the year to see the result.


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

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