Q. Are federal taxes taken out of the lump-sum payment for annual leave? And If I withdraw all of my Thrift Savings Plan upon retirement, will the tax be taken out before I receive the payment? A. Mike: A lump-sum distribution from your TSP will be subject to 20 percent minimum federal tax withholding. Reg: Yes, federal taxes will be taken out of your lump-sum payment for unused annual leave.
Monthly Archives: June, 2013
Q. I am a FERS employee with 14 years service, age 53. Tired of the pay freeze and “no money for promotions” line. Also tired of doing the jobs of higher paid co-workers while they call in sick two to three days a week. If I resign, can I take my FERS and Thrift Savings Plan in one lump sum and walk away? I am also a military retiree and have my pension and Tricare health care plans from that, so that is not a concern. Understanding the tax hit, will I just receive what I contributed, or the fed matching,…
Q. I am a 53-year-old CSRS employee with 31 years of service and I am contemplating taking advantage of any early-out retirement option if offered next year. I have heard rumors that the Internal Revenue Service has a rule in place that states that if I retire before age 59½, it will assess a tax penalty of 10 percent on my annuity amount for having retired early? I realize there is a penalty on the Thrift Savings Plan part, but I have never heard of tax penalty on federal pension due to early retirement. A. Not true.
Q. Upon turning 70½ years of age, one must begin taking required minimum distributions. The only exception is that the first distribution can be delayed until the following year. This serves to reduce taxable income in the 70.5 year, but increases taxable income since there would be two years’ worth of distributions in the next year. Can a part of the RMD be taken in the 70.5 year, with the remainder being carried over to the next year? A. Yes.
Q. If I resign at age 51 with 25 years of service, will I lose the government matching funds that went into my Thrift Savings Plan? Will I be able to receive a deferred annuity at age 62? What would that be — 25 percent of high-3? A. Mike: Agency matching contributions are not subject to a vesting requirement and are not forfeited at termination. Reg: Because you have at least 20 years of service, you could apply for a deferred annuity at age 60. Since each year of service would be worth 1 percent, with 25 years, your annuity…
Q. Is Federal Employees’ Group Life Insurance, survivor benefit and Thrift Savings Plan matching based on GS base pay or firefighter base pay? A. Mike: TSP matching is based on your pay. Reg: Your annuity will be based on your highest three consecutive years of basic pay. To determine what is included in the term “basic pay” for a firefighter, you’ll have to check with your personnel and payroll offices.
Q. I joined federal service in September 1984 and left at the end of August 1986. The FERS retirement program had not really been implemented and the Thrift Savings Plan did not exist. I declined to participate in CSRS since I was compelled to pay into Social Security and felt the additional retirement payments under CSRS were too much for me. In the summer of 1988, I returned to federal service and was told I had to wait a year before being eligible to participate in TSP. I heard from some employees that when TSP was first created, there was a “catch-up”…
Q. I have unfortunately neglected my Thrift Savings Plan since joining federal service in 2007. I started with the G Fund, stayed with it during the crash, and am still 100 percent in it today. I realize that was a huge mistake; the stock funds have done extremely well especially this past year. Would you recommend I dollar cost average in over the next six months or year? My instinct is to stop these low returns and get into the bond and stock funds and out of the G, but if the market takes a dive this summer, I will…
Q. I have been reading your responses to the questions of federal agents and early withdrawals of their TSP accounts. The publication, 575, specifically states that law enforcement officers are exempt from the penalty if they are at least in their 50th year and the plan is a “qualified retirement plan.” IRS Form 8880 instructions refer to the TSP as a “qualified retirement plan” and in various other places within the IRS publications. Why do you insist it is not? Can you please clarify your position on this? Also, the IRS defines a law enforcement officer as one that is authorized…
Q. I’m a 28-year-old FERS employee contributing 10 percent of my salary plus my agency’s 5 percent match to a traditional Thrift Savings Plan. I’m planning to increase my contribution by 1 percent each time I approach a step increase or other pay increase until I eventually max out my contributions. My decision now is to determine whether to put these additional contributions into a traditional or a Roth TSP. My understanding of the trade-off analysis is that it essentially comes down to an assessment of my current effective tax rate compared with what I project my effective tax rate will…