By Mike Miles
Roll over TSP without penalty?
October 22nd, 2012 | Uncategorized
Q. When I retire under FERS, can I get all of my Thrift Savings Plan monies, Social Security and my annuity? Can I roll over my TSP monies without paying 30 percent of the total to the Internal Revenue Service? If so, what amount of tax-deferred monies, once rolled over, can I take out monthly without a penalty or have to pay taxes?
A. Mike: Once you retire, you may withdraw your TSP money. If you retire during or after the calendar year in which you reach age 55, your TSP withdrawals will be exempt from the early withdrawal penalty. There is no withholding or tax due for TSP money rolled over to an IRA. If you are under age 59½, you will be subject to the early withdrawal penalty for withdrawals from an IRA. There are exemptions from the penalty, however, and they are spelled out in IRS Publication 590.
Reg: Yes, you can receive an annuity and, unless you retire under the MRA+10 provision, the special retirement supplement, when you reach your minimum retirement age. Unless you exceed the Social Security earnings limit from wages or self-employment, the SRS will continue until age 62 when you will be eligible for a Social Security benefit.
Tags: annuity, early withdrawal penalty, FERS, IRA, IRS, Minimum Retirement Age, retirement, Social Security, Special Retirement Supplement, taxes, TSP, TSP withholding
TSP withdrawal for vested former employee
August 14th, 2012 | Uncategorized
Q. I live in Alabama. I’m 32 and have worked about six years in the federal system. I am vested, and just left to work with a contractor. I have $7,400 in my Thrift Savings Plan account and want to do a full withdrawal. If I do the withdrawal, do I get that number since I’m vested, or only what I’ve contributed? Also, when or if I withdraw it, I know I will have 20 percent withheld. Will it hurt my tax return next year? If so, how do I avoid that?
A. You may withdraw your vested balance. That’s what “vested” means: It’s yours. The full amount of your withdrawal will be counted as ordinary income on the tax return for the year of the withdrawal. Any withheld amount will be credited against the tax you owe as a payment. You can reduce or avoid the tax effects of your withdrawal by rolling it over into another tax-deferred retirement plan, like a 401(k) or IRA.
Tags: 401(k), IRA, rollover, tax deferred, TSP withholding, vested, withdrawal
Tax withholdings and TSP withdrawal
May 29th, 2012 | Uncategorized
Q. I will be taking the early-out in July. I have been a postmaster for 24 years, and I am 55½ years old. I have plans to withdraw my Thrift Savings Plan. Will there be any penalties, and will taxes be taken out?
A. There will be penalty for early withdrawal. You’ll find the tax withholding requirements on Page 3 of this notice: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.
Tags: early retirement, penalty, TSP withholding, withdrawal
Monthly TSP payments and tax
May 17th, 2012 | Uncategorized
Q. I will be starting monthly payments from my Thrift Savings Plan account. I’m confused as to this making your payments last for 10 years. Is this really putting me into a better tax situation?
You must pay on your taxes at the end of the year. I spoke to someone at TSP, and she was explaining that it is to my benefit. If your payments last 10 years or longer, they only tax you as though you’re married with three dependents. If it’s not lasting for 10 years, they take out 20 percent every month.
Isn’t this a wash at the end of the year? I spoke to my tax person, but, I don’t think they totally understand TSP. I thought tax was tax.
A. Tax is tax. It’s the withholding that differs. But, as you say, that washes out when you file your return.
Tags: monthly, payments, taxes, TSP, TSP withholding
Penalty exception?
May 7th, 2012 | Uncategorized
Q. I recently retired as a federal law enforcement officer at age 50 after 25 years of service. I am able to presently withdraw a monthly set amount from my Thrift Savings Plan without the 10 percent penalty, correct? May I also reduce the 20 percent tax withholding TSP imposes on me?
A. Based on the information you’ve provided, you will be subject to the early withdrawal penalty unless you take your payments as a series of Substantially Equal Periodic Payments under Internal Revenue Service Rule 72t. There is no exception to the early withdrawal penalty for LEOs. The usual rules apply. You may reduce or waive the automatic withholding. See the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf for details.
Tags: early withdrawal penalty, law enforcement officer, taxes, TSP withholding
Taxes and monthly TSP withholdings
April 24th, 2012 | Uncategorized
Q. Will the Thrift Savings Plan automatically withhold money toward my federal and state taxes each month if I choose monthly withdrawals at retirement?
A. Federal withholding; yes. State withholding; no. See the table on Page 2 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf for details.
Tags: monthly, retirement, taxes, TSP withholding
Early TSP withdrawal
March 30th, 2012 | Uncategorized
Q. I am 41 and due to unemployment for two years following my active-duty retirement, I need to withdrawal all my Thrift Savings Plan funds. When the 20 percent is withheld from my payment, does that then get applied to my tax liability for this year? I understand that I owe 20 percent in taxes on the money, so is it set aside like federal taxes withheld in a regular paycheck? In addition, there will be a 10 percent penalty due to my age? Is the penalty automatically taken out if I elect for a total withdrawal, or must I set this aside when filing 2012 taxes?
A. The withholding from your withdrawal will not include an allowance for any early withdrawal penalty you may owe, and is just a deposit against your future tax liability. It does not reflect the actual amount you will owe, which will be determined when you file your tax return for the year.
More on TSP withholding
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!
Tags: early withdrawal, penalties, tax, thrift savings plan, TSP, TSP withdrawal, TSP withholding
How much will I really get from my TSP withdrawal?
December 20th, 2010 | Uncategorized
Q: I am retired military, and I want to withdraw the full amount of my Thrift Savings Plan account. Will I pay the tax and penalty immediately, or will I pay when I file my 2011 taxes? I have about $14,000 in my TSP. In other words, will I recieve the full amount or will it be taxed first?
A: You won’t actually be required to pay the tax and penalty until you file your return, but the TSP will withhold 20 percent from your payment as a deposit against future liability. You may not reduce this withholding, but you may elect to have more withheld.
Tags: tax, thrift savings plan, TSP, TSP early withdrawal, TSP penalties, TSP withdrawal, TSP withholding