TSP Taxes & the 10% Early Withdrawal Penalty, Updates, and the ELECTION!
TSP Taxes and the 10% Early Withdrawal Penalty
Yes, death and taxes are two things we can’t avoid no matter how hard we try. Taxes will increase dramatically if the President and Congress allow our current tax schedules to revert back to much higher rates. Taxes are a factor when withdrawing funds from your TSP or when you reach age 70 ½, the age you must start withdrawing funds from your account. The 10% early withdrawal penalty does not apply to payments after you separate from service during or after the year you reach age 55. Therefore, if you retire at age 55 or later you don’t pay the 10% penalty. There are other penalty exceptions for disability, annuity payments, death, and if your medical expenses exceed 7.5% of your adjusted gross income to mention several.
Contributions to the TSP are tax deferred. Essentially, you must pay federal income taxes on the amount withdrawn and that taxable amount is generally less in retirement for most because retirees typically earn less. The TSP is required to withhold income taxes from your payments unless you are allowed to request reduced or no withholding. IRS withholdings apply for eligible rollover distributions, periodic payments, and non-periodic payments. The TSP doesn’t withhold for state or local taxes and the recipient must pay these taxes if required.
A report prepared by the TSP clarifies the many tax issues that must be considered including how to transfer or roll over your TSP to a privately managed account. You will also find specific information on special circumstances for members of the uniformed services and an extensive Tax Treatment for TSP Payments spreadsheet that is very helpful. Visit http://federalretirement.net/tsp.htm  for complete information on the TSP program including a link to the TSP’s Tax Treatment report.
- COLAs – COLA s will not be paid to annuitants in 2011, 2 years running now. Congress plans to propose a one-time payment of $250 per annuitant in the lame duck session. More to come.
- Retiree Job Postings – An administrator position is advertised to manage the federal trust funds for U.S territories. Review the updated job listings  if you are seeking extra income or employment in retirement.
- 2010 Open Season Changes – Enrollee cost sharing for preventive care services has been eliminated. Incentives were added for tobacco cessation, and, in accordance with the Affordable Care Act, added coverage for dependents up to age 26. Premiums are increasing an average of 7.2% in 2011. Review the online Open Season guidance  for more details and individual plan costs for your area.
- OPM Retirement Processing Delays – If you are retiring soon be aware that major delays are being reported for retirement paperwork processing. OPM is now taking from between 6 to 12 months in some cases to process retirement paperwork. One of our site visitors reported that they retired in May and still hasn’t received a full annuity check. Incorporate this delay in the timeline we publish online that shows what to expect the first three months after your retire . For those anticipating retirement review What should I be doing the year before I retire  and The Best Date to Retire  for additional guidance.
- CSRS – The legacy CSRS retirement system is slowly fading away. It’s hard to believe that just under 80% of all active federal employees are now covered under FERS.
- TSP ROTH conversions – There was an excellent article published in Kiplinger’s November issue tilted “7 Myths About Roth Conversions”  that you will find interesting if you are exploring this option. I converted one of my retirement accounts to a ROTH this year to take advantage of tax free gains and no minimum withdrawal requirements at age 70 ½. For more information on converting all or a part of your TSP account to a ROTH review the guidelines at http://federalretirement.net/tsproth.htm . One important fact to consider is that if you fund a ROTH you can’t touch the account for five years unless you are over age 59 ½. If you are over 59 ½ you can withdraw your initial ROTH funding without penalty. Only the gains would be subject to taxes within the first 5 years. The Kiplinger article describes this benefit in detail.
Wouldn’t it be nice if we all had our own printing press and when we needed money we could just turn it on and print out a stack of twenty dollar bills to get us by for another month. Better yet, just use a credit card that we only pay the interest amount each month with no spending limits. Sounds like a dream come true but it is happening today. Then, when the debt gets too big government simply increases the spending limit and does more of the same. Insanity can be defined as doing the same thing over and over again and expecting a different result.
This county is addicted to debt! If you think about it, our government is running on empty and hoping someone else puts gas in the tank and right now that someone is China, Russia, and Japan who buy our debt each and every month. What happens when they stop buying or worse yet start selling their Treasury bonds?
I sincerely hope that most reading this article will get out and VOTE this November. Everyone I talk to these days gets a closing salvo; make sure you and yours vote this November. I’m doing my own personal intervention to get the vote out whenever I can. Both of my adult children moved last year and I called the local county office of voter registration to make sure they were properly registered at their new address and knew where to vote. It seems that many of the in-between years, 25 to 45, generation pay little attention to politics and only get involved when they realize things are changing a little too fast for comfort and to close to home. This year’s election is one that everyone needs to be paying attention to for so many important reasons.
Regardless of which side of the political spectrum you reside, to the left or right of center, there is common ground that all American’s care deeply about. This country is at a major juncture. How can we afford to stay this course and retain our independence, wealth, influence, and integrity?
Here are just a few interested facts. First, it was recently reported that over the past 12 months 46 cents of every dollar spent by government was BORROWED! Much of our manufacturing base has moved overseas. Last month the last GE incandescent light bulb factory in America closed its doors in West Virginia and 200 workers lost their jobs. The new GREEN initiatives were promoted and passed with fanfare and our politicians proclaiming hundreds of thousands of new GREEN jobs would be created as a result of this action. What they didn’t tell us is that those jobs too would be overseas. The new CFL florescent bulbs are being manufactured in China along with Wind Turbines, solar collectors, and much more. With the unemployment rate at near 10% where was government’s plan to restore our economy?
Let your voice be heard this November and reach out to your children, family, and friends to make sure their voices are also heard. After the election it is our responsibility to hold our elected officials accountable. VOTE November 2nd.
Visit our other informative sites
- http://federaljobs.net  (Federal Career & Job Center)
- http://federalretirement.net  (FREE Retirement Planning Guide)
- http://federalretirement.net/jobs.htm  (Retiree Job Opportunities)
- https://fedretire.net  (Retiree BLOG)
- http://fedcareer.info  (Career Development Center)
- http://postalwork.net  (Postal Career Center)
- http://searchfedjobs.com  (Job Search – All Sectors)
- http://ehsjobs.org  (Environmental Health & Safety Job Center)
- http://stolenplates.com  (What to do if this happens to you)
- Educational Opportunities  (Find educational opportunities in your area)
The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our articles are not intended nor should they be considered investment advice. Our reply is time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.”
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