Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
JayMcDonough
New Member

I HAVE A QUESTION ABOUT MY THRIFT PLAN SAVINGS PAYOUT AFTER RETIREMENT

I LIVE IN PA, AND PA IS AN EARNED INCOME STATE. I HAD A WITHDRAWAL 0F 153766 DOLLARS FROM MY TSP AFTER I RETIRED, AND TURBO TAX IS TELLING ME I OWE A STATE TAX OF 4804 DOLLARS. THE TAX WAS PAID ON THIS MONEY WHEN IT WAS EARNED. WHY AM I BEING DOUBLED TAXED ?
1 Best answer

Accepted Solutions
re2boys
Level 9

I HAVE A QUESTION ABOUT MY THRIFT PLAN SAVINGS PAYOUT AFTER RETIREMENT

Just a clarification, TSP contributions are before tax.  Federal taxes have never been paid on the contributions.

If box 7 is coded 2, it is an early distribution, exceptions to the early distribution penalty apply.  So, for federal, the distribution is taxable but you are not subject to the 10% early withdrawal penalty.

However, PA does not follow federal rules.  PA taxes have been paid on your contributions into the TSP.  For early distributions, the distribution is taxable to the extent that the distribution exceeds your basis in the plan.  Essentially, if you contributed $100K into the TSP over your career (not counting agency match) and you withdraw $150K, the first $100K you withdraw is a return of your already taxed contributions.  The remaining $50K is fully taxable on a PA income tax return.  The program should query you for your basis in the plan.

If you had waited until 59.5, the box 7 would be coded 7, which is fully exempt from PA income tax.

I've attached an excerpt from PA PIT Guide Chapter 7 that covers taxability of retirement plan distributions.  Finding your basis in the TSP will be the challenge.  You may need to contact the TSP.

View solution in original post

5 Replies
re2boys
Level 9

I HAVE A QUESTION ABOUT MY THRIFT PLAN SAVINGS PAYOUT AFTER RETIREMENT

What is the code in box 7 of your 1099R?  Is this a Roth TSP?
JayMcDonough
New Member

I HAVE A QUESTION ABOUT MY THRIFT PLAN SAVINGS PAYOUT AFTER RETIREMENT

Box 7 has a number 2 in it. No it's not a Roth tsp.
re2boys
Level 9

I HAVE A QUESTION ABOUT MY THRIFT PLAN SAVINGS PAYOUT AFTER RETIREMENT

Just a clarification, TSP contributions are before tax.  Federal taxes have never been paid on the contributions.

If box 7 is coded 2, it is an early distribution, exceptions to the early distribution penalty apply.  So, for federal, the distribution is taxable but you are not subject to the 10% early withdrawal penalty.

However, PA does not follow federal rules.  PA taxes have been paid on your contributions into the TSP.  For early distributions, the distribution is taxable to the extent that the distribution exceeds your basis in the plan.  Essentially, if you contributed $100K into the TSP over your career (not counting agency match) and you withdraw $150K, the first $100K you withdraw is a return of your already taxed contributions.  The remaining $50K is fully taxable on a PA income tax return.  The program should query you for your basis in the plan.

If you had waited until 59.5, the box 7 would be coded 7, which is fully exempt from PA income tax.

I've attached an excerpt from PA PIT Guide Chapter 7 that covers taxability of retirement plan distributions.  Finding your basis in the TSP will be the challenge.  You may need to contact the TSP.

View solution in original post

JayMcDonough
New Member

I HAVE A QUESTION ABOUT MY THRIFT PLAN SAVINGS PAYOUT AFTER RETIREMENT

Thank you for your answer. You mention in an example of contributing 100K and an agency match of 50K.  as I understand you answer, the 100K would not be subject to PA State tax because it was taxed when it was earned. Only the 50K of matching funds would be taxed because that was not state taxed yet. Is that correct ? In my case, I retired from the CSRS system and are exempt from any penalties by the passage of H.R. 2146 for "Public Safety Positions". The entire amount of withdrawal was my contribution dollars only, and PA State tax was taken out on all of that money at the time it was earned. My Agency made NO TSP contributions to my account. So, as I understand by your example, and the PA tax code on this, because the money was all my already taxed at the time it was earned, that the total withdrawal is not subject to PA State tax. Is that correct ?
re2boys
Level 9

I HAVE A QUESTION ABOUT MY THRIFT PLAN SAVINGS PAYOUT AFTER RETIREMENT

The 50K could be agency funds or growth in the investments, both are taxable in this situation.  Unless your investments lost money (?) a portion is investment gains that are taxable.  You can't assume that the entire amount was only  your contributions, there likely is investment gains included in the total.  You should have seen gains (and a few losses) in your investment on each quarterly statement that you received.    BTW, CSRS retiree here with a TSP.  I haven't contributed in 15 years but my TSP has steadily grown in value.
Dynamic AdsDynamic Ads
v
Privacy Settings