Q. My husband and I are federal retirees (both 65). We are buying a second home. We are contemplating withdrawing our down payment (50 percent; $130,000) from our Thrift Savings Plans. We are trying to determine the best way to handle the tax issue. Does it make more sense taxwise to withdraw a large amount (130,000) and incur the 20 percent tax hit, or make a lower down payment (20 percent; $52,000) and request an annuity of $1,000 per month, thereby reducing our yearly tax liability? We are currently in the 25percent tax bracket.
A. The only way to answer this question responsibly is to prepare pro forma tax returns for each option and compare the results.