Ask The Experts: Money Matters

By Mike Miles

TSP withdrawal due to disability

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Q. I’m separated from federal service due to disability. I’m waiting on a federal disability decision. In 2011, I took money out of my Thrift Savings Plan while still employed due to a decline in pay stemming from my disability, and I knew I would be going out under disability. In 2012, I again took a withdrawal because I did not have any income, was waiting on a decision, and was told that the next withdrawal would deplete the account. Unfortunately, I had to take the last withdrawal this week due to lack of income and no decision on the disability filing.

I am not tax-savvy, and I file my own taxes using an online tax preparer. I put disabled not employed, and never claimed the TSP money in any of the cases. Now, the Internal Revenue Service is coming forward asking for me to pay taxes on the 2011 withdrawal. Is there a form I need to submit showing it was due to disability? Do I need to contact the TSP office for the form? As I understood it, if monies was withdrawn for disability, they wouldn’t/shouldn’t be taxed.

A. I suggest that you carefully read the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. I don’t know of any exception to the tax liability for disability. But as your tax preparer, you are responsible for the contents of your return.

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