By Mike Miles
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 Because you are separated from service, your vested TSP balance is available to be withdrawn immediately.
December 20th, 2010 | Uncategorized
Q: Mike Miles answered a recent question about Thrift Savings Plan withdrawal by saying that the person making the withdrawal pays the taxes and penalties when filing a tax return, but that the TSP will withhold 20 percent for future liabilities. I’m not sure what that means: If the taxes and penalties are paid when we complete our tax returns, why does TSP withhold 20 percent, and what happens to that money? What could be a future liability? Do we ever get the 20 percent back?
A: The TSP withholding is mandatory; the 20 percent will be deposited with the government and applied against your 2011 tax liability when you file your return. In other words, when you file your return for the year of the withdrawal, the money withheld from your check will appear as a credit against your taxes. The withholding is not actually tax, it is just an advanced payment against whatever your tax turns out to be. If you owe less than you deposited through withholding and/or estimated tax payments during the year, the overpayment will be refunded to you. This is very basic stuff and if it’s a mystery to you, you should seriously consider having a professional prepare your returns!
October 14th, 2009 | Uncategorized
Q: I have an IRA from a previous employer that is not performing too well. The Thrift Savings Plan seems to be rebounding rather nicely over the past several months. Should I move the IRA into the TSP? Can this be done without any penalties?
A: The TSP is a better investment environment than any retail IRA account I have ever seen, and I generally recommend that eligible investors move their IRA money into the TSP whenever possible. You are eligible if your IRA account contains no after-tax money — money from non-deductible contributions. Check with your IRA custodian to determine what, if anything, they will charge for liquidating your account.
— Mike Miles