Ask The Experts: Money Matters

By Mike Miles

Retirement bonus and contributions to Roth IRA and TSP

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Q. I agreed to a $20,000 retirement incentive bonus offer from the Postal Service and retired in May 2011.  The first half of the bonus was paid in November 2011 and the second half in November 2012.

Today, I received a W-2 from the Postal Service describing this second half of the bonus as wages received in 2012 even though I officially retired in May 2011 and haven’t worked for them since then. (I had been assuming the bonus payment in 2012 was going to be incorporated into my CSRS retirement accounting.)

I haven’t earned any other income since I retired, but since I have “USPS wages received in 2012,” am I eligible to contribute $6,000 to my Roth IRA for 2012? And, if I had acted on this in 2012, would I have been eligible to contribute perhaps my entire $10,000 to my Thrift Savings Plan account?

A. Income that is included on your W-2 as wages qualifies as the basis for an IRA contribution, but your tax preparer is ultimately responsible for what goes on your tax return. Regular TSP contributions can only be made by payroll deferral, so if the money wasn’t included in a paycheck, you could not have contributed any of it to the TSP.

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Comments

  1. Mike Hickey Says:
    January 29th, 2013 at 8:19 am

    Hey Mike enjoy reading your advice. One comment however. “Your tax preparer is ultimately responsible for what goes on your tax return.” Actually, while that can certainly be a defense to a criminal tax charge, it is virtually never an ace in the hole during a civil audit or examination. The taxpayer is ultimately responsible for what is reported on a tax return, and filers should exercise caution and wisdom in choosing their preparer.

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