By Mike Miles
April 11th, 2012 | Uncategorized
Q. My husband and I are federal retirees (both 65). We are buying a second home. We are contemplating withdrawing our down payment (50 percent; $130,000) from our Thrift Savings Plans. We are trying to determine the best way to handle the tax issue. Does it make more sense taxwise to withdraw a large amount (130,000) and incur the 20 percent tax hit, or make a lower down payment (20 percent; $52,000) and request an annuity of $1,000 per month, thereby reducing our yearly tax liability? We are currently in the 25percent tax bracket.
A. The only way to answer this question responsibly is to prepare pro forma tax returns for each option and compare the results.
April 2nd, 2012 | Uncategorized
Q. I am 67, retired, and I am considering withdrawing $21,000 from my Thrift Savings Plan to pay off my home mortgage payments of $500 a month. I’m helping two grandchildren with college and the $500 a month is rough. What would my tax liability be on $21,000?
A. The only way to answer this question is to prepare your tax return for the year of the withdrawal.
March 30th, 2012 | Uncategorized
Q. I worked for DoDDS schools from 1987 to 1990. At that time, vesting was five years with FERS. When I resigned, I believe I had to forfeit my retirement and was made to withdraw my Thrift Savings Plan. Would this have been correct for that time period with FERS? And DoDDS?
I came back to work for DoDEA in January 2001. I called to make certain that I was going to get credit for those three years. I wanted to redeposit my TSP money but was not allowed to, and was told there was no provision for repayment. It seems that I was also told that my forfeited retirement would now be reinstated and that the three years would be added to whatever time I worked. I am now ready to retire and this is causing some confusion.
A. Mike: If you withdrew your TSP money and did not roll it over to an Individual Retirement Account, you will not be allowed to redeposit this withdrawn money to your new TSP account. You may, however, roll untaxed IRA money into your TSP account at any time.
Reg: If you left your contributions in the retirement fund when you left, that period of service would be reinstated. If you didn’t, you’d have to redeposit that amount plus accrued interest to get credit for it.
March 21st, 2012 | Uncategorized
Q. I left federal service and have $4,019.42 in my TSP account. I requested a
full withdrawal. Will I get the full amount less the 10 to 20 percent that is with
held for taxes?
A. Your payment will be subject to 20 percent mandatory tax withholding.
March 19th, 2012 | Uncategorized
Q. A friend of mine in the office (Federal, CSRS) recently passed away. His wife, in looking through his TSP account, discovered that he had withdrawn $70,000, but she cannot figure out where that money went because she finds no records other than the withdrawal itself. If you have any ideas of how I might help her track it (or anyone involved in federal service TSP), or discover what happened to it, it would be extremely helpful.
A. If the TSP made the check payable to him, then the answer can only be found in his records, and not in the TSP’s. He may have cashed the check and spent or otherwise disposed of the cash, with no further paper trail. If he deposited to a bank or investment account, the statements would show the deposit. He may have used it to buy a life insurance policy or annuity contract. Again, there should be a record of this purchase. If he rolled it into an IRA, there should be a statement for this and possibly an indication in a past tax return.
Tags: TSP withdrawal
March 8th, 2012 | Uncategorized
Q. I am 54 years old with 33 years of federal service, 27 in the Postal Service and six as a military buyback. If the USPS offers voluntary early retirement, Iwould take it; but I have an outstanding loan with my TSP and not enough cash or credit for a loan to pay it off. How would this work? May I use my TSP to pay it back, and would I be able to withdraw funds from TSP, even with the 10 percent tax penalty? How does TSP figure what has been paid in and what is interest accrued, and am I able to use the noninterest funds to pay my loan off? Also, I turn 55 in August. Once I turn 55, will there be any penalty removed or will this happen at my minimum retirement age of 56?
A. Since you will be retiring in the calendar year in which you reach age 55, once you retire, you will have access to your TSP funds without the early withdrawal penalty. After you retire, your agency will notify TSP of your separation, and it, in turn, will notify you that you have an outstanding loan balance. If you do not repay the loan amount due promptly after receiving the notice, the TSP will declare the unpaid balance as a taxable distribution. This is effectively the same as withdrawing the money to repay the loan. In addition, you will have access to your TSP money, according to the usual rules, after you retire.
March 7th, 2012 | Uncategorized
Q. I cashed out $12,000 from my TSP in 2011 and listed it on my tax return as income — and paid income tax on it. Now H&R block is saying I was supposed to pay a penalty on the withdrawal.
About five years ago, I cashed out about $10,0000 and don’t remember paying a penalty.
I called the IRS and they were clueless. I am 56 years old and don’t retire
for about four to five years. I am again contributing to my TSP.
Do you know if I was supposed to pay a penalty to the IRS?
A. If you took an early withdrawal and don’t meet one of the exceptions to the penalty, you’ll owe the penalty. If you don’t trust your tax preparer’s advice, you should find another tax preparer.
March 6th, 2012 | Uncategorized
Q. I am civil service, with more than 17 years of federal service, in FERS, and approaching 59½ and would like to withdraw 50-75 percent of my TSP and roll the full amount over into my Roth IRA account. I would leave 25 percent in my TSP and let it continue to grow for my remaining time in federal service. How do I go about doing this, if I can? Does this make financial sense to do this? I plan on retiring at age 62; Dec. 31, 2014.
A. You may take an age-based in service withdrawal once you reach age 59½ and convert it to a Roth IRA. I can’t think of a good reason to do this, but you may have some unusual circumstances that I don’t know about.
March 1st, 2012 | Uncategorized
Q. I am a FERS retiree from the federal government in March 2011. I received the VERA/VSIP in a lump sum of $25,000 ($18,000 after taxes). In July, I withdrew a lump sum from my TSP to pay off my mortgage, that amount was also taxed. Since the lump sums I received were taxed already, how is it that I have to claim them as income? I am preparing my 2011 taxes and those lump-sum payments make it appear that I earned more than $100,000 in 2011. It seems to me that I am paying taxes twice on the money. Am I right? Would it have been more to my advantage if I had received the lump sums this year (2012)?
A. You were not taxed on the money before you received it. Money was withheld against your tax liability. You must claim the gross amounts as part of your income, which they are, and you will also receive credit for the withholding against your tax bill.
February 27th, 2012 | Uncategorized
Q: I plan on retiring at 62 from the Federal Employees Retirement System. Will I be penalized for withdrawing money from my Thrift Savings Plan account at that age?