By Mike Miles
MRA and TSP withdrawal penalties
August 24th, 2012 | Uncategorized
Q. I am a FERS employee with the Postal Service and will have 30 years of service at age 57. Can I withdraw from my Thrift Savings Plan without penalty if I have reached my minimum retirement age?
A. Your MRA has no effect on TSP withdrawal penalties. After you retire, you’ll have access to your TSP account without penalty. While you’re still working, you’ll have to wait until you reach age 59½ to avoid the penalty.
Tags: FERS, Minimum Retirement Age, Postal Service, TSP, withdrawal penalty
Roth TSP withdrawal
April 24th, 2012 | Uncategorized
Q. Will you be allowed to withdraw the principal (not the interest earned) from your Roth TSP account after the five-year seasoning period and without any retirement age restrictions? Do the Internal Revenue Service’s rules on Roth 401(k) or a Roth IRA apply to Roth TSP?
A. The early withdrawal penalty covers Roth distributions prior to age 59½.
Tags: 401(k), interest, IRS, Roth TSP, withdrawal penalty
Cashed out TSP
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.
Tags: IRS, TSP withdrawal, withdrawal penalty
401(k) and taxes
February 3rd, 2012 | Uncategorized
Q. Last year, I took out $3,000 from my 401(k) and paid my 20 percent penalty. This year, I went to do my taxes and expected to pay the additional 10 percent penalty of $300. I do my taxes on freetaxusa.com, and my refund was supposed to be $1,800 after I entered my W-2. But as soon as I entered my $3,000 distribution, it knocked it down to $1,300. I have no other factors involved as far as why I would be charged more than the initial $300 I expected. Do you think there is something wrong and they are charging me $200 more than I should be paying for my penalty tax? I didn’t finish my return because I don’t want to get cheated out of $200.
A. I suggest you consult a competent tax preparer — one who will defend your return in case of an audit.
Tags: 401(k), taxes, withdrawal penalty
TSP withdrawal penalty
February 1st, 2012 | Uncategorized
Q. I’m an Air National Guard military technician, and I’ll be retiring this July at my minimum retirement age of 56. I plan on making monthly withdrawals from my Federal Employees Retirement System Thrift Savings Plan at that time. I know I won’t have to pay a penalty on these FERS TSP withdrawals, but do I have to wait until the age of 59½ to start withdrawals without paying the penalty? Can I roll my military TSP into my FERS TSP when I retire?
A. You may combine your military and civilian TSP accounts. Visit www.tsp.gov and search for form TSP-65. The instructions for this form should give you the details you need to proceed with a combination. If you separate from federal service during or after the year in which you reach age 55, distributions that you receive from the TSP account that is associated with that service will be exempt from the early withdrawal penalty. If at least one of your TSP accounts meets this definition, you may combine them to avoid the penalty on all distributions.
Tags: FERS, Minimum Retirement Age, rollover, TSP, withdrawal penalty
Withdraw TSP fund without penalty
November 15th, 2011 | Uncategorized
Q. I am taking VIRA/VSIP and am age 53. I have 26 years time in service and my minimum retirement age with 30 years of service is in 2015 at age 57. When can I access my TSP funds without being subject to the 10 percent withdrawal penalty?
1. Most literature indicates that if you retire early in the year 55 or later, you can withdraw immediately without penalty.
2. The TSP board (I called twice already) says only 59½.
3. The FERS handbook states you can withdraw without penalty at MRA with 30 years (my case 57).
I would think that an early out would qualify me for immediate withdrawal.
A. Your service time and reason for retirement have nothing to do with the IRS early withdrawal penalty. Since you are retiring before the year in which you will reach age 55, you will be subject to the early withdrawal penalty until you reach age 59 1/2 unless you qualify for one of the exceptions listed on page 4 of the notice at https://www.tsp.gov/PDF/formspubs/octax92-32.pdf.
Tags: early withdrawal penalty, thrift savings plan, TSP withdrawal, withdrawal penalty
TSP distribution at retirement
November 8th, 2011 | Uncategorized
Q. I would like to know the best way of accessing all the money in my TSP account while avoiding IRS early distribution penalties. Here is my situation:
* I am CSRS Offset and retiring on Jan. 31 with 30 years of service.
* I will turn 55 on Sept. 1, 2012.
* I have $92,000 with the TSP.
I need to withdraw virtually all of my TSP account to pay off all my high-interest loans. How soon can I withdraw the TSP account funds without the IRS early distribution penalty?
A. Since you are retiring during the calendar year in which you reach age 55, your TSP withdrawals will not be subjected to the early withdrawal penalty. You should confirm this with your tax preparer before proceeding, however.
Tags: early withdrawal penalty, TSP withdrawal, withdrawal penalty
TSP withdrawal
November 8th, 2011 | Uncategorized
Q. If I receive a Voluntary Early Retirement Authority at age 54, when and what options will I have to withdraw money from my TSP account? It is my understanding I have to be 55 before I can withdraw money without the penalty. I assume I would be able to start the date I turn 55 and if that is true, are the same withdrawal options available to me as if I retired after I turned 55? Also, if I take monthly payments, when can I change those?
A. Once you separate from service, you may take a lump-sum withdrawal or a series of monthly payments, or both, if you haven’t already taken a partial lump-sum withdrawal. If you separate from service during or after the calendar year in which you reach age 55, you will not be subject to the early withdrawal penalty. The amount of monthly payments may be changed once each year, effective in January. Visit www.tsp.gov for more information.
Tags: TSP withdrawal, withdrawal penalty
Withdrawal from 401(k) or TSP
October 18th, 2011 | Uncategorized
Q. Is there a way to withdraw money from my 401k or TSP without paying a tax penalty, in order to use the money to pay for college tuition for a child?
Tags: 401(k), taxes, TSP withdrawal, withdrawal penalty
TSP withdrawal
June 21st, 2011 | Uncategorized
Q: I have a question regarding a withdrawal recently made from my TSP account. I wanted to make an investment with this account and withdraw the full amount by not having the taxes withheld on the account. When I called the TSP phone number, the representative said that I could withdraw the funds and pay the taxes later on my next tax return by using a WP4 form. Being assured that it could be done, I went ahead and sent in the form to withdraw from my TSP account with the WP4 form. Without informing me first, the money was withdrawn from the account with the 20 percent tax withheld and I could no longer make my investment. It was when I called to inquire on the status of the account that I found this out. The representative I talked to said that the funds could not be re-established into my TSP account, but did say they have a record of the other representative who said that I could delay the withholding tax. I would like the funds returned to my account. Do I have any recourse in this matter? Would it benefit me to work with an attorney?
A: The relevant material available on the TSP website clearly explains that the 20 percent mandatory withholding on a lump-sum, full withdrawal from an account following separation from service may not be waived or reduced. It may only be increased using form WP4. I’m not sure whether an attorney would help, but I doubt that it would. Your experience provides a valuable lesson for others: It is better to obtain reliable counsel – in this case, engaging a CPA would have been a good idea – before acting, than after.
Tags: TSP withdrawal, withdrawal penalty, WP4 form