Q. I have recently retired from the U.S. Postal Service under CSRS. I had been contributing the maximum amount toward my TSP. When I left, I received my balance of annual leave in a lump payment. I am rolling my TSP over to a Fidelity account to have more choices with regard to withdrawal options. Since the money from annual leave pay is treated as earnings, can I place some of it in the IRA account?
A. You should reconsider your decision to leave the TSP. If you put your mind to it, you should be able to find a way to meet your spending needs within the withdrawal limits they impose. At least leave a balance there so you can transfer your IRA money back into the account later if the withdrawal restrictions are relaxed.
The IRS specifically excludes “compensation that was deferred from a previous year” from serving at the basis for an IRA contribution. You should either consult a CPA for guidance on the matter, or wait to see how the income is categorized when it is reported to you at the end of the year. If it’s not reported as compensation on your W-2, it’s probably not going to be eligible to serve as the basis for an IRA contribution.