Browsing: withholding rate

Q. I have $100,000 in my Thrift Savings Plan account. What will I receive, after early withdrawal penalties, if I close the account? A. The minimum federal tax withholding is 20 percent, but you can elect a higher rate, so the maximum you’ll receive is $80,000. The early withdrawal penalty won’t be due, along with whatever tax you actually owe on the withdrawal, until you file your taxes in April of the year following the year of the withdrawal. See the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf for details.

Q. I recently retired from the federal government due to becoming permanently disabled at age 61. I received my disability approval from the Social Security Administration. I withdrew a portion of Thrift Savings Plan funds to cover expenses as a result of not being able to work. Why was 20 percent tax deducted from the distribution of funds at age 61 and with the legal purpose of being disabled? A. Because that is the default federal income tax withholding rate for the distribution. The money has been applied toward your tax liability for the year.

Q. I am a military member retiring in January 2014. I will have approximately $57,000 invested in my Thrift Savings Plan account when I retire.  If I decide to withdraw my account in one lump sum, how much will I pay in taxes? I’ve heard that I would be taxed up to 30 percent of my balance at time of withdrawal, which would leave me with about $39,900 after taxes. Is this accurate? A. Your check will be reduced by 20 percent for mandatory federal tax withholding. This is just a deposit against your federal tax liability, however, which you won’t determine…

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 asked to withdraw my Thrift Savings Plan account. I understand that they automatically withhold 20 percent of the balance. I live in Pennsylvania and was wondering if I will have to pay more taxes even though TSP withheld the legal limit of the 20 percent. I am trying to figure out if I should be expecting a bill from the Internal Revenue Service once I file my taxes for 2012. Maybe I’m overthinking this, but I’m trying to buy my first house and heard rumors that the money can be used for this without penalty. A. The 20 percent withholding…

Q. I will retire this year at age 70 and will request one on the following: 1.)  monthly payments for 10 years or more, or  2.) monthly payments based on the Internal Revenue Service’s life expectancy table. My withholding rate will be the same as if I were married with three children but at what tax percentage? Let’s say my annual payout is $10,000. What is my annual tax liability as it pertains to Thrift Savings Plan payments? Will I be paying less than 10 percent? A. The default withholding rate is not fixed and will depend upon the amount of the distribution. You…

Q. I plan on retiring next year at age 59½ as a FERS retiree. Can I withdraw all of my Thrift Savings Plan savings as a lump-sum payment? If so, what are my tax liabilities? A. Yes, you may withdraw your TSP savings as a lump sum following separation from service. You will report the withdrawn amount as ordinary income on your tax return for the year. The amount of your tax liability will depend upon the details of tax return. Your withdrawal will be subject to 20 percent mandatory withholding against your tax liability. See https://www.tsp.gov/PDF/formspubs/tsp-536.pdf for more information.

Q. My husband retired from 36 years of federal service on June 2.  He is in CSRS. We hope he will begin receiving his check within a month or two. Given that he retired halfway through the year, and given that his initial checks will be only 60 percent to 70 percent of what is due, we anticipate that he could get the money owed for those first months in a lump sum in the next tax year. This could be a sizable sum and could have significant tax consequences. It also makes it hard to plan for the correct amount…

Q. I plan to retire next month at age 62 and withdraw my entire Thrift Savings Plan account. I know that they will withhold 20 percent for federal taxes, but how can I keep from being taxed on that amount as income in the same calendar year? With my current rate of pay, adding some $300,000 to $400,000 in the TSP withdrawal will surely kill me in taxes. A. Assuming that you are determined to withdraw your entire account balance at once (why would you do this?), you can roll over part of your withdrawal to an IRA.

Q. I will be 59½ in August. I would like to make an in-service withdrawal from my Thrift Savings Plan. At this time, I have a loan out on my account. Do I need to repay this loan before I take an in-service withdrawal for the total amount in my account, and how much tax will I be charged for this withdrawal? A. You do not need to repay the loan before taking an age-based in-service withdrawal. The automatic tax withholding rate on these withdrawals is 20 percent unless you transfer your payment to another retirement plan or account.