By Mike Miles
April 2nd, 2012 | Uncategorized
Q. I am 67, retired, and I am considering withdrawing $21,000 from my Thrift Savings Plan to pay off my home mortgage payments of $500 a month. I’m helping two grandchildren with college and the $500 a month is rough. What would my tax liability be on $21,000?
A. The only way to answer this question is to prepare your tax return for the year of the withdrawal.
April 2nd, 2012 at 11:15 am
This advice is the same I tell people if they ask me anything about taxes. I hope you have used a software package to do your taxes this year. If so, just create a new person or couple depending on your filing this year … you should be able to just open an existing file and save it as a new name like TSP CASH OUT TEST 1. Then document your withdrawal as if you did it this year and see the difference in taxes paid. Look for other options and model them as well as additional files TEST 2 and/or TEST 3 so you can compare all of them side by side. One other option might be taking less out and using that for the college assistance, but don’t give it to the grandchild in a lump sum … make payments to the school as needed. If your not careful, college can become the largest bar bill you’ll ever pay. I hope not … but getting a college degree is a fantastic goal and accomplishment, it will change a person’s life and lifetime income.