Q. What would be the tax rate on a TSP taxable distribution due to an unpaid loan stemming from a transfer of function/work? My human resources office did not make appropriate change in time and left me with a balance amount (lump sum) I could not afford to pay back in order to continue loan payment. Now I’ll have to pay taxes on a taxable distribution of $11,680. Just trying to figure out how much I’ll owe. I’m hoping my refund will cover the taxes due. A. The distribution will be included on your tax return as ordinary income, and…
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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 recently retired (CSRS, law enforcement) and am trying to decide whether to leave my money in the Thrift Savings Plan or roll it over into a privately managed IRA portfolio including diverse programs that will meet my goals of growth, income, annuities and a certain amount of liquidity. If my TSP portfolio is diversified to meet the above goals, if you compare apples to apples, is the TSP considered better or worse (value performance, management, fees) than rolling into a privately managed portfolio (with a broker I trust). A. TSP is the best retirement investment vehicle there is.…
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 am a single FERS employee. In 2012 and prior years, I have been able to contribute the maximum amount to my Thrift Savings Plan account to bring my adjustable gross income below the income phase-out limit to be able to contribute the maximum to a Roth IRA. However, in 2013, I believe my AGI will exceed the limit and I would like to take advantage of the Roth TSP option. If I contribute the maximum $17,500 to the Roth TSP, can I still invest in a traditional IRA? If so, can I take the IRA deduction even though I make…
Q. I am a FERS employee contributing to the Thrift Savings Plan. At the recommendation of a pre-retirement seminar, I am looking at a one-time in-service withdrawal of $100,000 into a Roth IRA. I realize that it will add $100,000 to income for 2012, but this is the year my husband’s business is losing money anyway. We intend to pay taxes now (presumably when they are lower, though my income will drop significantly when I retire) and not pay taxes on future earnings. Smart or dumb? A. You shouldn’t make that move without a thorough analysis of the tax implications using pro-forma returns and…
Q. There is around a $5,000 annual limit to a Roth IRA based on income and age. Does that limit apply to TSP? In other words, can I put all $17,500 plus the $5,500 catch-up contributions for those age 50 and older into the Roth TSP and pay taxes on it now, rather than later regardless of my income? I am a civilian over 50 years old in FERS. A. The Roth IRA limit does not apply to Roth TSP contributions.
Q. My husband and I are both retiring soon, he under FERS and me under CSRS. His income will be made up mostly of Social Security, while mine will be mostly CSRS. A full annuity for him would cost $425 a month. Does it make sense to elect this annuity given the cost? Would a term life insurance policy be a better alternative? I need to put the paperwork in this week. A. There is no universal answer to this question, but if in doubt, the safe bet is to elect the full survivor benefit for your spouse. To answer this question properly would take…
Q. Are there income limitations on a Roth TSP? For example, can a single person with an income greater than $127,000 contribute to a Roth TSP (in 2013)? A. The contributions are not affected by the size of your income.
Q. What factors determine whether it is better to pay insurance premiums with pretax dollars or waive that and pay with after-tax money? My thought is that by paying with after-tax money, taxable income is increased, thereby increasing the Social Security entitlement. How do you determine if that is more beneficial than the reduced tax liability now? A. The answer depends on your circumstances and a number of assumptions about the future. The issue is discussed on the Office of Personnel Management website at www.opm.gov/insure/archive/health/pretaxfehb/qanda/23.asp.