Q. I appreciated your Feb. 4 article concerning the advantages of the Thrift Savings Plan vs. more costly private products. I am unclear, however, about the options (and their advisability) when it comes time to retire from federal service. Recognizing that rules allow distribution without penalty at 59½ and require some distribution from any IRA at 70, is continuation in the TSP an option which would allow the retiree to access the account as desired, or must the TSP account be moved to a private instrument? A. I have written about this topic on more than one occasion. You may…
Browsing: distribution
Q. I am a retired CSRS employee. What taxes, if any, do I owe New York state on annual distributions? The initial contributions were not taxed by New York. A. Your distributions are considered ordinary income for tax purposes. They should be reported as such on your federal and state tax returns, unless your state provides a special exemption for this type of income. If you want specific guidance for completing your tax return, you should seek the help of a qualified tax preparer.
Q. What is the definition for the Thrift Savings Plan early distribution exclusion “made as a result of total and permanent disability”? Does this mean that a retired military member with a Veterans Affairs Department-certified disability who is under age 55 is excluded from the 10 percent early withdrawal penalty? Specifically, I would like to withdraw my TSP in full upon military retirement at age 42 and will most likely have a portion of VA-certified disability based on injuries sustained on active duty. What justification is needed to report to the Internal Revenue Service when you file your taxes? A. I…
Q. If I am 52 years old and have all of my contributions in the L Fund now at 100 percent, and expect to retire in 2028, what would you recommend on how to distribute my percentages among the other funds? A. This is like asking what kind of car you should buy. The correct answer depends entirely upon what you expect the car to do. If you don’t know what to do, you can pick the L Fund that most closely corresponds to your life expectancy and use that. This is like choosing to buy a four-door sedan, though.…
Q. I am 55 years old and in the process of obtaining Postal Service disability. I want to know the tax ramifications if I withdraw my Thrift Savings Plan at 55 after separating from service. I will have 24+ years in. I have $200,000 and want to make monthly payments, not based on life expectancy. I want to withdraw $1,000 a month at 55 for 25 years or so until it is depleted. Am I subject to any additional penalty taxes? I called TSP and the Internal Revenue Service and was told that because I am spreading the monthly payments over 10 years, they would…
Q. I am a military member retiring in January 2014. I will have approximately $57,000 invested in my Thrift Savings Plan account when I retire. If I decide to withdraw my account in one lump sum, how much will I pay in taxes? I’ve heard that I would be taxed up to 30 percent of my balance at time of withdrawal, which would leave me with about $39,900 after taxes. Is this accurate? A. Your check will be reduced by 20 percent for mandatory federal tax withholding. This is just a deposit against your federal tax liability, however, which you won’t determine…
Q. I turned 62 in December. I am 100 percent disabled from combat wounds. I worked federally for a while and saved $102,000 in a G Fund under FERS. I’m about to start losing my home as my wife will have to retire this year. Without her income, we won’t be able to afford the mortgage (but no credit card or other debt on the house.) What percentage at age 62 does a 100 percent disabled vet have to pay when withdrawing savings in full? I think it’s stating 20 percent, but that doesn’t seem reasonable. Am I reading it wrong? I want…
Q. I took out my Thrift Savings Plan lump sum, mainly to pay off my house. My lump sum was approximately $340,000, with about $68,000 in taxes taken out. Is the lump sum considered ordinary income? If so, this puts me in a high tax bracket for this year and has me owing about $40,000 to the government in taxes. Is this right? If so, this isn’t something they warn you about when you take it out. A. Yes, a TSP distribution is taxed as ordinary income and you’ve provided an excellent example of why you should not make such…
Q. I will be retiring this year after 21 years in the Air Force. I have $20,000 in the Thrift Savings Plan and was wondering if it would be better to roll it over into an IRA or pay off all of my credit debt. How big of a hit would I take for withdrawing my TSP early? A. It’s impossible to say which is better without some careful planning and analysis. If you trigger the early withdrawal penalty on a TSP distribution, you’ll pay 10 percent of the earnings distributed.
Q. In January 2011, I was forced into retirement at age 62 due to a surgery that left me visually impaired. I took a partial withdrawal to pay off personal expenses. The Thrift Savings Plan deducted 20 percent for federal taxes before the distribution was made. However, when federal taxes were filed jointly, I owed $16,000 in taxes due to the TSP money. Why did I pay taxes twice when I met the 59½ age rule? A. That’s a question that only your tax-preparer can answer, although I doubt you paid taxes twice, and there would have been no early withdrawal…