How to Pay Taxes: Thrift Savings Plan to an IRA
Original post by Shula Asher Silberstein of Demand Media
The federal government offers employees a thrift savings plan (TSP) account. This type of retirement account allows employees to deposit pre-tax dollars; the employee isn't taxed on the funds until he removes them from the account. Normally, federal employees can't withdraw TSP funds before the age of 59 1/2 without paying tax penalties. However, employees may roll funds over to a traditional IRA if they separate from employment. Rolling over funds doesn't generate taxes, although withdrawing the funds and then re-depositing them in the IRA does.
Obtain a withdrawal form from your thrift savings plan administrator. Even though you are rolling funds over directly, you still must complete the withdrawal form to effect the transfer.
Check your paperwork if you aren't sure what type of IRA you have. You can only roll funds over to a traditional IRA, not a SIMPLE or Roth IRA.
Fill out the withdrawal form. Indicate how much of your withdrawal you want to roll over to the IRA.
Keep track of funds in your IRA and report them to the IRS each April as non-taxable income.
Pay a 20 percent penalty tax at the time you withdraw funds from your TSP if you are under the age of 59 1/2. Report withdrawals as income on your taxes even if you reinvest them in your IRA. Deposit personal funds equivalent to the tax penalty into your IRA if you decide to reinvest distributions after receiving them.
- TSP withdrawal form
About the Author
Shula Asher Silberstein has been writing fiction and nonfiction since 2006. He writes about social issues, especially those of concern to the LGBTQ community. He has written a novel, "Shades of Gay." Silberstein holds a Master of Fine Arts in screenwriting and fiction from the University of Southern California.