By Mike Miles
March 5th, 2013 | Uncategorized
Q. I was approved for disability retirement in November under FERS due to my diagnosis of a malignant, incurable brain cancer (my life expectancy is six to nine months). I withdrew my Thrift Savings Plan in lump sum ($29,000) to pay my medical and living expenses. I am including my TSP distributions in my tax return. If I understand correctly, my TSP money should be added to my earned income (for example, if I earned $50,000 + $29,000 TSP =$79,000 total year of 2012 income) and it will be taxed as ordinary income. Is there any way for a terminally ill person to exclude this TSP amount from my gross income tax return category? Because I am separating from service during or after the calendar year in which I reach age 55, no early withdrawal penalty will apply.
A. I’m not aware of any exception to the tax imposed on TSP withdrawals for a terminal illness. You should consult a CPA in your state for specific tax advice.
January 21st, 2013 | Uncategorized
Q. I have a friend who has been receiving workers’ compensation benefits for about 25 years but is not yet separated from service and worked under CSRS. Can he apply to the Office of Personnel Management to receive the monies in TSP in a lump-sum payment without having to retire? Or will he have to apply for disability retirement first?
A. As long as he is employed, the in-service withdrawal rules will apply.
January 14th, 2013 | Uncategorized
Q. I received a disability retirement four years ago. I had 25 years of service and will be 57 years old in February. I have rolled over my Thrift Savings Plan. At what age can I start receiving it?
A. You can withdraw money from an IRA at any time.
April 17th, 2012 | Uncategorized
Q. I have $200,000 in my Thrift Savings Plan and have just been approved for disability retirement from federal service. I’ll be separated from the agency in mid-May. I am 55 years old. I am not sure whether to roll my TSP into an IRA. I don’t want to start withdrawals from my TSP, but I don’t want to pay an investment firm big brokerage fees to manage an IRA. I have no debt but have a daughter in high school for another year. What should I do with my TSP?
A. Keep it and manage it for as long as possible.
December 30th, 2010 | Uncategorized
Q: I am 53 years old, and I was a U.S. Postal Service employee with 20 years of service under the Federal Employees Retirement System. I took disability retirement from the USPS in March after suffering injuries in Iraq as a reservist. If I take a full withdrawal from my Thrift Savings Plan account, will I pay a penalty to TSP, and at what percentage? How much will I have to pay in taxes? Will the USPS match my TSP balance? And how long must my money stay in a TSP account before I can make a full withdrawal without a penalty?
A: For the rules covering withdrawal taxes and withholding, see the TSP notice here. The TSP does not levy penalties against withdrawals; that’s a matter for the IRS. Whether you may withdraw your funds without penalty will depend upon the way in which you take the withdrawal and the extent of your disability.
While I’m not an expert on USPS-specific benefits, I don’t know why they would double, or otherwise increase, your TSP balance beyond what has already been contributed to your account. Because you are separated from service, your vested TSP balance is available to be withdrawn immediately.