Q. I withdrew my federal TSP in March 2019 and they took the appropriate amount of federal tax. I just received a 1099-R for that withdrawal to file with my taxes for 2019. I know that it is not considered earned income, so will I get taxed again? If not, why am I required to file it with my 2019 return? A. When you took your withdrawal, the amounts that were withheld were deposits against your tax liability for 2019. When you file your return, you will report the gross amount of your withdrawal as Ordinary Income and it will…
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Q. I am currently employed with Bureau of Prisons with the law enforcement offer FERS retirement potential. I am 40 years old, with nearly 4 years in with the Bureau. I am in the process of buying back 3.4 years military service. I also have a 100 percent permanent VA disability rating. Being that I began federal service late, I am not sure how my body will hold up to being a corrections officer for 20 years. But looking ahead, if I cannot continue my job due to aggravated or increased disabilities and I end up medically retiring early, meaning before…
Q. I am 57 years old, currently working at DHS/CBP and have 12 years and 5 months of service. I have degenerative disc disease, which in turn limits my abilities to do my daily activates at work as well as at home. I have had several treatments over the past 15 years and there is not much that can be done to relieve my pain without taking anti-inflammatory medication along with narcotics for pain relief. The pain meds limit my thinking abilities and make me drowsy and I can’t drive my one-hour commute to work every day. I can’t sit or…
Q. Concerning the “First Year Rule,” I will reach full retirement age (66) in October 2020. Suppose I earned $10,000 a month, so by Oct. 1, I would have earned $90,000 for the year, which means I would have paid the 7.2 percent tax into my Social Security Insurance account during that time. Since I would have surpassed the $47,000 number, do I owe $1 for every $3 for the $43,000? Also assume, once I retire, I would receive $3,000 per month in SSI retirement benefits. If I worked after retiring during October thru December and made $3,000 per month,…
Q. I’m a CSRS employee with an active Voluntary Contributions Program account. My year-end contributions statement of 12/31/2019 shows a total earned interest of $32,076 since I opened the account. If I convert the entire balance of my VCP account to a Roth IRA, will I be responsible for paying taxes on the $32,076 earned interest at the time of conversion? A. The conversion will be reported as taxable ordinary income for the year in which it is constructively received. Interest refunded to you is subject to a mandatory 20 percent tax withholding. However, if the interest on the voluntary contributions account is…
Q. My late husband was a FERS retiree when he passed in 2017. I am also a federal employee, but am under CSRS. I’m planning to retire soon, and am wondering if I have our TSP funds in the correct L Funds. I was told it should correspond to your retirement year, but just read that it should be based on my life expectancy. Which is accurate? Also, is it correct that if I withdraw from my husband’s TSP it would not be subject to the 10 percent penalty? A. There is no “accurate” or correct way to choose an…
Q. I am 58 years old and seeking retirement soon after my 62nd birthday. I would like to withdraw my Thrift Savings Plan when I am 59 1/2, in a lump sum. How much will I have to pay in penalties and taxes? A. It sounds like you will be taking an age-based, in-service withdrawal. The amount withdrawn from your Traditional account will be taxed as Ordinary Income. There will be no penalty for early withdrawal.
Q. I am retiring from federal service at my MRA of 56 with 30 years of service. I plan to continue to work as a support service contractor to my federal agency. Can I withdraw money from my Thrift Savings Plan savings without penalty while I am working as a support service contractor? I know I will have to pay income tax on my withdrawals, but wanted assurance that my withdrawals will not be subject to a penalty since I meet MRA and years of service requirements. A. Under the circumstances you describe, your TSP distributions will be exempt from the…
Q. I received a Voluntary Early Retirement Authority in 2012 at the age of 53. I chose to receive a monthly installment payout from my TSP for at least 10 years, believing I would not be taxed. I received a letter of deficiency from the IRS stating that I owe a penalty for not paying taxes on my TSP installments. Is this correct? A. That’s a question for tax accountant, but if you did not follow the rules governing a Series of Substantially Equal Periodic Payments, you might owe the early withdrawal penalty. The rules are complex and you should engage a…
Q. I retired from the U.S. Postal Service at the end of 2018 with 31 ½ years of service. I met my minimum retirement age at 56, so I believe I wouldn’t be taxed a 10 percent penalty if I withdrew from my TSP before age 59 ½. I would like to withdrawal a partial lump from my TSP. Would I be taxed for that withdrawal? A. If you receive a TSP distribution before you reach age 59 ½, in addition to the regular income tax, you may have to pay an early withdrawal penalty tax equal to 10 percent of…