Q: I’m 66 and employed by the Army. I am covered by CSRS-Offset and have been making contributions to the TSP, but no “make-up” contributions. I have applied for and received Social Security benefits based on full eligibility during this calendar year. Are my TSP contributions still excluded from my computation of Adjusted Gross Income? A: Your TSP contributions via payroll deferral are always taken pre-tax and stay that way until you withdraw the money.
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Q: I was putting $10 per pay period into my TSP account. I increased it to $400 per pay period and my state and federal tax amount withheld went substantially lower. Is this correct and should I adjust my exemptions? A: It is probably correct since deferring your pay into the TSP reduces your taxable income for the year of the contribution. You should consult your tax preparer about the appropriate withholding rate, but if your taxable income is lower, it makes sense that your withholding should be lower.
Q: My wife wants to withdraw money from her TSP to pay off financial obligations. How much can we expect to pay in taxes if she withdraws $65,000? A: Her withdrawal may be subject to withholding. You can review the information in the document at https://www.tsp.gov/PDF/formspubs/octax92-32.pdf. How much you wind up owing in tax will depend upon the specifics of your tax return for the year of the withdrawal.
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.
Q.I have heard that friends are having more taken out for federal tax on their IRA or annuity accounts. Mine did not. Does that mean I’ll owe money next April? I thought all the Bush tax cuts were extended. A. Withholding and the actual tax you wind up owing are two different things. I can’t tell you whether or not you’ll owe money in April, but the more you contribute during the year, the less likely you are to have to pay later.
Q: I have heard that my friends are having more taken out for federal tax on their IRA or annuity accounts. Mine remain the same. Does that mean I’ll owe money next April? I thought the Bush tax cuts were extended. A: Withholding and the actual tax you wind up owing are two different things. I can’t tell you whether you’ll owe money in April, but the more you contribute during the year, the less likely you are to have to pay later.
Q: I retired from federal service Jan. 1, 2010, under CSRS. In April last year I received a full distribution from my TSP account. I live in Pennsylvania and am interested to know if I’m responsible for paying state tax on my full TSP ditribution. A: My review of the Pennsylvania rules leads me to understand that TSP income is not taxed if you are retired and at least 59½ years old when it is taken. You should consult a PA/CPA to be sure, however.
Q: What happens if your total contributions to the TSP for the year exceed the IRS limit of $16,500? A: I’m not sure how this could happen since the payroll system should cut off your payroll deferral when the annual limit is reached. I suggest you contact the ThriftLine at 877-968-3778 to discuss the situation.
Q: I retired when I was 55 years and 10 months old in February 2008. I did a partial transfer of my TSP to IRAs. There is approximately $10,000 left in the TSP. Would I be subject to the 10 percent tax if I withdraw it all? I will be 59 1/2 in October 2011. A: No.
Q: My husband just retired on Dec. 31 from the U.S. Postal Service and has a TSP loan balance. He’s 60 and will turn 61 on March 11. Should we pay off the loan, or should we choose not to pay and declare a taxable distribution? How much tax penalty with there be if we declare a taxable distribution? A: If in doubt, he should repay the loan. If he doesn’t repay it, there will be no early withdrawal penalty – only income tax.