Q. I’m retired, and for 2017, I increased the amount I’m taking out in monthly TSP withdrawals. I received a letter today from TSP acknowledging my payment had increased, the correct amount and the number of months these payments are expected to last.
The letter went on to say if my payments are expected to last less than 120 months, they’re considered eligible rollover distributions, not periodic payment for tax purposes.
I really don’t know what this means, but somehow I suspect it means I’ll pay more in taxes. Can you shed light on this?
A. The difference determines whether or not the payments are eligible for rollover to another retirement account and whether or not federal tax withholding is required. Remember that tax withholding and tax liability are not the same. The letter does not mean that you’ll pay more in taxes. Every dollar you withdraw from your TSP account is added to your tax return as ordinary income, and taxed as such.