Q. I live in Alabama. I’m 32 and have worked about six years in the federal system. I am vested, and just left to work with a contractor. I have $7,400 in my Thrift Savings Plan account and want to do a full withdrawal. If I do the withdrawal, do I get that number since I’m vested, or only what I’ve contributed? Also, when or if I withdraw it, I know I will have 20 percent withheld. Will it hurt my tax return next year? If so, how do I avoid that?
A. You may withdraw your vested balance. That’s what “vested” means: It’s yours. The full amount of your withdrawal will be counted as ordinary income on the tax return for the year of the withdrawal. Any withheld amount will be credited against the tax you owe as a payment. You can reduce or avoid the tax effects of your withdrawal by rolling it over into another tax-deferred retirement plan, like a 401(k) or IRA.