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…
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Q. My wife has contributed to her Thrift Savings Plan all her career and we will draw on it soon. We both have federal pensions and Social Security pensions that do not count toward income for purposes of the Social Security cap. If she receives her TSP in a lump sum, I know we have to pay taxes, but will that money be considered income for that year and offset our Social Security pensions, or is her TSP considered part of her retirement income? A. TSP withdrawals are not considered earned income.
Q. I retired in April 2008 and took a lump-sum distribution from my Voluntary Contribution Plan, with the interest going into my Thrift Savings Plan and the principal amount going into my money market fund. Is it still possible to take the entire VCP principal amount and put it into a Roth IRA four years after retirement? When I attended various CSRS federal retirement seminars in 2007 and 2008, I was never informed of the option to transfer the principal amount to a Roth IRA. A. This is not possible.
Q. I am retiring Jan. 23 from CSRS. Hence, I will be paid in 2013 for about 1½ pay periods. Can I have all of that pay go to the Thrift Savings Plan, tax-deferred? Can I also have my lump-sum annual leave payment go to TSP, tax-deferred, up to the annual limits? A. Your pay can be deferred into the TSP, but not your leave payout.
Q. I will be eligible to retire Dec. 4 with both minimum retirement age and years of service under FERS. I would like to wait until Jan. 31 to retire to complete a project. I will have 240 hours of annual leave going into 2013. The combination of my lump-sum payment for my annual leave and my January wage earnings would exceed the Social Security earnings limit for 2013. Since the Social Security earning limit is the same as the FERS annuity supplement earnings limit, would this make me ineligible for the special retirement supplement for 2013? If I put all…
Q. Can a retiree withdraw money from the Thrift Savings Plan more than once? How many times? A. You are allowed one partial withdrawal and one full withdrawal per lifetime. The full withdrawal can be taken as a series of monthly payments, which you can terminate with a lump sum distribution of the remainder. The withdrawal limits are clearly explained at www.tsp.gov.
Q. I am 47 years old and worked for the post office for three years. During that time, I bought back my military service time of eight years. Am I eligible to someday get that retirement for the 11 years? If not, will I be reimbursed what it cost to buy back my time? Is the Thrift Savings Plan a separate entity, and when can I start receiving that? I’m currently working away from the federal realm. A. Mike: The TSP is yours to maintain and manage for as long as you like. You may withdraw money from it whenever…
Q. I am CSRS and eligible to retire now with 30 years at age 56. My salary excludes my wife and I from funding a Roth with more than $6,000 each year (except $22,500 allowable into new Roth TSP). Let’s say I put $25,000 into the Voluntary Contributions Program with the intention of making a one-time, lump-sum withdrawal as soon as possible and roll the original $25,000 into a private Roth IRA. I am told that doing so is a way to immediately fund a Roth that is not limited to my current $6,000 amount mentioned above. Do I understand this correctly,…
Q. What Thrift Savings Plan options are available upon retirement other than purchase of an annuity? What rules govern TSP rollovers to an IRA? A. You may leave your money in the TSP and manage it there for life; you may take one partial withdrawal; you may take a full withdrawal as a lump sum or a series of monthly payments, or some combination of these. Internal Revenue Service rules govern rollovers to an IRA. Visit www.tsp.gov for more information.
Q. I left federal service (did not retire) at age 57. If I opt for a lump-sum payout, will I just be taxed 20 percent? I keep seeing the additional 10 percent tax before age 59½. Also, are there additional taxes to be paid if I do not roll over into a traditional IRA? A. You will be exempt from the early withdrawal penalty since you separated from service during or after the calendar year in which you reached age 55. If you do not roll your withdrawal over, it will be taxed as ordinary income when you file your tax return for…