By Mike Miles
October 30th, 2013 | Uncategorized
Q. I am a CSRS Postal Service employee and plan to retire at the end of 2014, when I will be 55 years old with 38 years of service (including sick leave). After reading other answers, I understand that I can immediately withdraw funds from my Thrift Savings Plan without penalty but would like advice regarding those withdrawals. Considering that TSP withdrawals are subject to regular income taxation, is it beneficial to move the funds to an IRA? Would I avoid any tax? Other than future growth potential and smaller tax rate, is there any benefit to delaying withdrawals until later in life?
A. You may roll over your TSP withdrawals that are not required to an IRA and continue to defer the tax to a later time. I can’t tell you whether this will be beneficial since I don’t know enough about you and your circumstances to make that determination. Better investment performance and tax management are the only reasons I can think of for delaying your TSP withdrawals. What more reason do you need?
October 22nd, 2013 | Uncategorized
Q. I am almost 58 years old and retired from military/federal service after my 55th birthday. I would like to withdraw my Thrift Savings Plan now, in a lump sum. How much will I have to pay in penalties and taxes?
A. You’ll be subject to 20 percent backup federal withholding, no early withdrawal penalty, and your tax liability will be determined when you file your tax return for the year of the withdrawal. The money you withdraw will be taxed as ordinary income, and the rate will depend upon your particulars.
October 17th, 2013 | Uncategorized
Q. I am an air traffic controller who will be forced to retire in May 2016 when I turn 56 with 28½ years of service time. If I retire anytime between Jan. 1, 2015 (the year I turn 55) and May 2016, will I be able to take out a lump sum and monthly payments from my Thrift Savings Plan without the 10 percent tax penalty? Do I have to follow the life expectancy requirement for receiving monthly payments, or am I free to set the payment amount as I wish and adjust it once a year?
A. Since you are separating from service during or after the calendar year in which you reach age 55, your TSP withdrawals after you separate will be exempt from the early withdrawal penalty.
October 16th, 2013 | Uncategorized
Q. I have seen quite a few questions (and answers) about how to request that Thrift Savings Plan loan payments be suspended during the government shutdown, but no detailed information about exactly how to continue to make payments should one want to do that. When during the regular pay cycle should one send in a payment check with the appropriate form? When we go back to work, and if back pay is given, will the loan payments for the entire period of furlough, or perhaps the last pay period only, be taken out? How long of a period of nonpayment may there be before the tax penalties kick in?
A. If you are in nonpay status for reasons other than active military service:
The maximum period that the TSP can suspend loan payments is one year.
If your nonpay period exceeds one year, your loan will be automatically reamortized and you must make payments from your personal funds to avoid being in default.
Interest on your loan accrues while your payments are suspended.
If you want to continue making loan payments while in nonpay status, you can do so by sending a personal check or money order to the TSP. Use Form TSP-26, Loan Payment Coupon, when sending in your payments. Your payments will be taken into account when the loan is reamortized upon your return to pay status.
When you begin your period of nonpay status, you or your agency must submit one of the following forms of documentation to the TSP:
Form TSP-41, Notification to TSP of Nonpay Status; or
Form SF-50, Notification of Personnel Action; or
A letter on agency or service letterhead, signed by an appropriate agency official or your commander or adjutant, that contains your name, date of birth and Social Security number; the beginning date of the nonpay status; and the signature and title of the agency or service representative providing the information; or
A copy of your military orders.
When you return from nonpay status, you must notify the TSP of your date of return. You can use any type of documentation described in the above section. Once your agency notifies the TSP of your return, your loan will be reamortized to place it in good standing.
Note: If your agency reports you as separated from civilian service to perform military service, you will be required to repay your loan in full within 90 days. If you don’t, the outstanding loan balance and any unpaid interest will be reported to the Internal Revenue Service as a taxable distribution.
October 7th, 2013 | Uncategorized
Q. I want to take a loan from my Thrift Savings Plan account to cover my bills during the shutdown. According to the TSP loan booklet, as long as the furlough last less than 30 days, this is not a problem. If the furlough lasts more than 30 days, the loan becomes a disbursement and is taxed, plus additional penalties assessed (10 percent) by the Internal Revenue Service. Is this true? How can one prepare for a furlough that lasts longer than 30 days?
A. I don’t know where you read this, but it’s not true. If you’re in nonpay status, you are ineligible to initiate a TSP loan, so the question is not applicable. If you have a loan and go into approved nonpay status, you may suspend loan payments for up to one year. After that, your loan will be reamortized and you will have to make loan payments by check to avoid default. See pages 13-15 of the TSP loan booklet at https://www.tsp.gov/PDF/formspubs/tspbk04.pdf for the facts.
September 30th, 2013 | Uncategorized
Q. I have a loan balance of $18,366. I’m 56 years old and plan to retire in three months. Am I subject to the 10 percent penalty if I do not repay the loan?
September 30th, 2013 | Uncategorized
Q. I work for the Postal Service. I have 30 years of service. I will have to take a discontinued retirement today. I will turn 55 in December. My minimum retirement age is 56. I understand from a previous question that I qualify to receive my Thrift Savings Plan without penalty because I am retiring in the year that I will turn 55. Will I be able to start withdrawing this money from TSP without penalty when I retire? Or in December, when I turn 55? Or at my MRA of 56?
A. Your MRA has nothing to do with it.
September 23rd, 2013 | Uncategorized
Q. I will have 30 years of service and be 54 years old when I take early retirement in January. Since I will turn 55 in August 2014, will I be able to withdraw without penalty from my TSP even though my minimum retirement age is 56?
A. As long as you separate from covered service during or after the calendar year in which you reach age 55, you will avoid the early withdrawal penalty on withdrawals taken after you separate. Your MRA has nothing to do with it.
September 16th, 2013 | Uncategorized
Q. I will be a 56-year-old CSRS employee with 33 years in service and 2,842 hours of sick leave. Since I contributed to the Thrift Savings Plan and plan on doing a one-time complete withdrawal, will I incur a large tax penalty?
A. If you retire at age 56, you will not be subject to penalty for withdrawing money from your TSP account.
September 16th, 2013 | Uncategorized
Q. I’m a Defense Department firefighter (special category). At what can I withdraw my Thrift Savings Plan without incurring any penalties?
A. If you’ll settle for specific monthly payments, you can withdraw it any time after you separate from service without penalty. If you want a lump sum or monthly payments that don’t fall within the limits imposed by Internal Revenue Code section 72(t), then you’ll have to wait until you reach age 59½ unless you separate from federal service during or after the calendar year in which you reach age 55. In the latter case, any withdrawal you make will be exempt from penalty.