Q: Does TSP use only one IRS table for calculating Minimum Required Distributions for TSP participants 70-plus years old? My wife is 17 years younger than I am, so we will want to use the IRS table for “Joint Life and Last Survivor Expectancy” (IRS Pub 590, Appendix C), which is available for people whose sole beneficiary is more than 10 years younger. However, my reading of the TSP website materials (pub TSP-775 “Important tax information about your TSP withdrawal and required minimum distributions”) indicates that TSP uses only the “Uniform Lifetime” table for everyone. Is that correct? If so,…
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Q: A few years ago, I applied for an early withdrawal from my SP, specifically a hardship loan. Ten percent was taken right off the top, and I reported the early withdrawal on that year’s taxes. Two years later, the IRS says I owe them another 10 percent, plus a $1,000 penalty plus interest. If I had that kind of money, I wouldn’t have asked for a hardship. Does it even matter that I borrowed against my TSP for hardship reasons? Is there another way to borrow against your TSP (early) without going broke? A: You took a hardship withdrawal,…
Q. I am retiring Nov. 30 and considering using a lump-sum withdrawal from my TSP to pay off my mortgage. I have read material at the TSP website and Googled my questions but not found a clear answer about the tax withheld. What is the federal tax percentage on a lump-sum withdrawal? I am 63 ½ and not withdrawing all funds. I would be making one withdrawal, leaving the balance to continue the investment, and no intention of future withdrawals. A. The TSP will withhold 20 percent of the distributed amount for federal taxes.
Q. I cannot find the origin of the law, rule or whatever the decision process was to subject monies withdrawn from 401(k) and retirement funds to the 10 percent penalty if one has not reached 59½ years of age. Was this legislated? Was it an Internal Revenue Service decision? How did it come about? A. This question falls outside the scope of this forum. You should pose it to a legal historian.
Q. We are getting ready to be offered an early retirement under the Voluntary Early Retirement Authority. I’m a Civil Service Retirement System employee, and I’m thinking about taking the offer. I would like to withdraw my Thrift Savings Plan, but I won’t be 55 until Feb. 22, 2012. Is there any way of getting around paying the 10 percent Internal Revenue Service penalty for early withdrawal under the age of 55? A. If you actually separate from service on or after Jan. 1, 2012, your TSP withdrawals will not be subject to the early withdrawal penalty. If you separate…
Q. I am a 66-year-old female who retired in January 2007, with more than 30 years Civil Service Retirement System service. I am thinking of withdrawing my Thrift Savings Plan savings. I understand that I will not be penalized the 10 percent, and I would have to pay the mandatory 20 percent if I decide to withdraw. Does the 20 percent also apply at age 70½? Does this also apply to partial withdrawals, and do you have to pay back if you do a partial? Is the amount taxed by the Internal Revenue Service on your entire TSP earnings? What percentage…
Q. I have two questions on the Thrift Savings Plan MetLife annuity. On page 11, paragraph 1, under the heading, “How Your Annuity is Taxed,” in the TSP pamphlet, “Withdrawing your TSP Account After Leaving Federal Service” (June 2007), reads: “… your TSP annuity payments will be taxed as ordinary income in the years when you receive them. However, these annuity payments are not subject to the IRS early withdrawal penalty, even if you are under age 55 when they begin.” As both my wife and I are under 55 and are considering an early out/buyout that has just been…
Q. I stopped work in March 2009. I applied for OWCP. The Office of Workers’ Compensation Programs had paid for two back surgeries in 1989 and 1991 and continues to pay for ongoing treatment. I was denied OWCP, so I applied for disability retirement, which was approved. I am still on interim retirement pay. I withdraw some funds from my Thrift Savings Plan to cover me for the time period between OWCP and retirement. I now need to withdraw more for medical reasons. Since I am medically disabled from my federal position, as well as medically retired, what is the…
Q: Two of the biggest selling points of placing assets in a revocable living trust is that when you die your assets can be distributed privately and without the need for probate. But if everything is done privately and no probate court is involved, how would the IRS know whether or not the decedent’s estate was subject to estate taxes? A: The decedent’s estate is required to file tax returns, trusts or no trusts.
Q: I withdrew money from my Thrift Savings Plan and now it’s tax time, so we have to pay quite a bit. Will I be able to change the Code 1 into an “L” on Form 1099 so we do not have to pay so much in taxes? A: No, you can’t just change the code on a 1099 to avoid paying taxes or penalties. If you took an early distribution and don’t meet one of the IRS exceptions, you’ll owe the penalty. Maybe you should consult a CPA before filing your return.