‘Substantial’ withdrawal


Q. I retired April 30, 2016, under FERS law enforcement and was considering taking a one-time, partial withdrawal to pay off our mortgage and complete some home improvements. The withdrawal would be substantial — in the $400,000 range. Is there any advantage or disadvantage in withdrawing the money now or is it better to wait until the following year? My wife and I are uncertain if we would be taxed beyond our current rate and if the withdrawal is viewed by the IRS as “income” for purposes of filing at the end of 2016.

A. You will need to prepare, or have prepared for you, pro-forma tax returns for 2016 and 2017 to properly answer this question. The answer will depend entirely upon your circumstances during the years involved in the decision.

In general, however, I don’t think that it’s a good idea to add $400,000 to your ordinary, taxable income during a single tax year unless you have no choice, or you are sure that it’s to your advantage. If you don’t want to wait for the improvements, then you’ll have to take the withdrawal (or borrow the money). I doubt that it would be to your advantage to take a large sum to pay off your mortgage, but I guess it’s possible.


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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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