Q. I am on CSRS,over 59 1/2 years old, and thinking of withdrawing my TSP and putting it in a personal account. If, for example, I have $50,000 to withdraw, and there is a 20% tax penalty, as I understand it, this means I receive $40,000. Now, is $50,000 added to my income for tax purposes, or is $40,000 added to it? If it is $50,000, can I include the 20 percent penalty as tax deducted from my income on my tax return?
A. There will be no penalty on your withdrawal. There may be a federal tax deposit withheld, which will be applied against your tax liability when you file your return. The $50,000 will be added to your tax return as ordinary income for the purpose of determining your tax liability.