Q. I read your “Best Dates to Retire” in 2017. While I did not retire in 2017, I am planning to retire in 2018. Based on everything that you recommended for 2017 retirement planning, I am using this as my guidance for 2018 retirement planning.
I am a FERS status employee. I will have 26 years of FTE service as of August 3, 2018. I have a base of 240 hours carryover annual leave and 1,500 hours of sick leave. I intend to accrue my max leaves for both AL and SL. I will use my accrued AL toward a lump-sum payment and expect that all of my SL will accrue in some manner toward my pension calculation.
My question concerns how best to minimize my tax exposure for 2018. Is it better to officially retire between January 1,2019, and January 4, 2019, and become annuity eligible in February 2019 so that my lump sum payment of approximately $25,000 monthly pension annuity will be taxed in 2019, or does it still make more financial sense to retire December 31, 2018, and become annuity eligible in January 2018? When does one receive the lump sum payment if one retires on December 31, 2018.
A. Income isn’t taxable until it is constructively received, so annual leave payout you will receive will be taxable in 2019.
