Q. You say neither a first-of-year, lump-sum leave payment nor a first-of-year, last paycheck qualifies as earned income for IRA purposes that same year. Considering IRA contributions are based on W2 wages, why wouldn’t the Internal Revenue Service accept these as earned income, since they are reported on that year’s W2 form, and taxed in the same year as the proposed IRA contribution? A. I suggest that you review IRS Publication 590 for guidance on this issue.
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Q: If I retire at the end of the year and receive my last paycheck for the wages in the next year, could that income be used as the basis for contribution to an IRA? You recently said “no” for this option regarding receipt of lump-sum annual leave, but what about wages earned in 2010, but not received until 2011? A: That is earned income for 2010, deferred into 2011, so is not earned income for 2011.
Q: If I retire at the end of 2010 and receive my lump sum annual leave payment in 2011; will I be able to put money into an IRA or the Thrift Saving Plan in 2011, even though I did not actually work that year? In other words, would the lump-sum payment in 2011 be considered earned income? A: No. The payment is considered deferred compensation and is not a basis for contribution to an IRA or the TSP.
Q: If I retire at the end of 2010 and receive my lump sum A/L payment in 2011, will I be able to put money into an IRA or a TSP in 2011 even though I did not actually work that year? Would the lump-sum payment in 2011 be considered earned income? A: No. The payment is considered deferred compensation and is not a basis for contribution to an IRA or the TSP.
Q: What happens to IRA basis when a Traditional IRA is rolled into TSP and there was a basis of $18,000 that was put into IRA after taxes? A: In order to transfer an IRA balance into the TSP, you must sign a statement saying that it contains no basis. If you did this, you basis is lost and all withdrawals from the TSP are taxable income.
Q. Can I take advantage of an traditional IRA under these circumstances. I am retired, with a pension from my former job plus Social Security distributions. I am 70.25 years old (limit 70.5). If I am eligible to start an IRA, then how long must it remain to avoid any withdrawal penalties? And what fees are involved during withdrawals? I understand that I would only be eligible to make a one-time catch up contribution of $6,000. This move is an effort to reduce the taxes due for 2009. A. You are not eligible to contribute to an IRA unless you…
Q: In answering a previous question about maximum nondeductible contributions to Individual Retirement Accounts, you wrote: “Your participation in the Thrift Savings Plan should not prohibit you from making the maximum nondeductible contributions to a traditional IRA in 2009.” Is the answer the same if I have a Roth IRA instead of a traditional IRA? Can I max out both TSP at $22,000 and ROTH IRA at $6,000? A: The rules are different for Roth IRA contributions. You’ll have to use an online calculator or the rules contained in IRS Publication 590 to see if you can contribute to both.
Q: In 2006, my financial adviser convinced me to take a one-time within-service Thrift Savings Plan withdrawal and roll it into an Individual Retirement Account for purposes of stretching the IRA withdrawals. My money was invested in a variety of funds within the American Funds group (all front-end loaded). Of course, my funds were decimated in 2007 and 2008, and I have yet to recover. Can I roll my IRA funds back into the TSP after having exercised the withdrawal? I am trying to rectify what I have come to believe was a serious error in judgment. I am 65…
Q: I retired three years ago at age 56 with 33 years of civilian service in the Civil Service Retirement System. I elected to take my Thrift Savings Plan contributions and roll them over to a qualified program. I began drawing off my investment in the fall of 2008. After talking to our tax adviser this year, I learned that I was penalized for early withdrawal in 2008 and will be again in 2009 because I will not be 59 1/2 until June of this year. After attending a retirement seminar several years ago, I was informed that because I was…
Q: If I retire from the Foreign Service this year at age 50, I would like to continue to save for the traditional retirement years (after age 70). What is the best way to do that? Can I contribute to my Thrift Savings Plan for years to come via IRA transfers using form TSP-U-60? If so, are there constraints? A: The best way to save will depend upon your circumstances and goals. There is no correct, one-size-fits-all answer. Under current rules, you may continue to move money into your TSP account from an IRA account, indefinitely, with no limit. Keep…