Ask The Experts: Money Matters

By Mike Miles

Retirement bonus and contributions to Roth IRA and TSP

Bookmark and Share

Q. I agreed to a $20,000 retirement incentive bonus offer from the Postal Service and retired in May 2011.  The first half of the bonus was paid in November 2011 and the second half in November 2012.

Today, I received a W-2 from the Postal Service describing this second half of the bonus as wages received in 2012 even though I officially retired in May 2011 and haven’t worked for them since then. (I had been assuming the bonus payment in 2012 was going to be incorporated into my CSRS retirement accounting.)

I haven’t earned any other income since I retired, but since I have “USPS wages received in 2012,” am I eligible to contribute $6,000 to my Roth IRA for 2012? And, if I had acted on this in 2012, would I have been eligible to contribute perhaps my entire $10,000 to my Thrift Savings Plan account?

A. Income that is included on your W-2 as wages qualifies as the basis for an IRA contribution, but your tax preparer is ultimately responsible for what goes on your tax return. Regular TSP contributions can only be made by payroll deferral, so if the money wasn’t included in a paycheck, you could not have contributed any of it to the TSP.

Tags: , , , , , ,

IRA deduction and IRS

Bookmark and Share

Q. I retired from the Defense Department on Dec. 31, 2009, and received my final paycheck in 2010. I purchased a traditional IRA for 2010, and claimed an income tax deduction for that IRA. I just received notice from the Internal Revenue Service that they have disallowed the deduction stating that according to my W-2 from DoD, I was covered by an employer retirement plan in 2010.

My agency payroll office tells me an amount of approximately $13 was added to my retirement account based on my final paycheck, which I received in 2010.

The IRS suggested I have my agency modify the W-2.

My agency says it does not have the authority to modify the W-2.

The reality is I was no longer a DoD employee. Do I have any options?

A. This is a question for a tax attorney or CPA — preferably one who will stand behind your tax return.

Tags: , , , , ,

Maximize TSP deduction

Bookmark and Share

Q. I am a federal employee with more than 34 years of service under CSRS. I am planning on retiring Jan. 3, 2013. The amounts I earn in pay period 26 (Dec. 16-29, 2012) and pay period 27 (Dec. 30, 2012-Jan. 12, 2013) will not be paid to me until after Jan. 1, 2013, and will therefore be shown as taxable income on my 2013 W-2. Can I designate 100 percent of my net earnings for those two pay periods to my Thrift Savings Plan to reduce my taxable income for 2013 and maximize my TSP account?

A. You may defer as much of your income as you like to the TSP, until the annual contribution limit is reached. You should check with your payroll office to make sure you know which tax year will be affected by the deferral.

Tags: , , , , , ,