disability retirement

[rockdj]

imported post

I will soon be going out on disability and need a good portion of my TSP to pay some things. They told me I'd have to pay 20% because it's early. What is the 10% penalty I'm reading here about?

 

[Birchtree]

imported post

rockdj,

I was going to stay away from your situation - but unfortunately I know a mistake when I see one about to happen.

Sorry about your disability - hope you return to good health soon.

The 10% penalty is exactly what it is - designed to be a detriment to taking funds out of a tax deferred program. You can get it back as an adjustment to your 1040 next year when you do your taxes. Somewhere around number 33 on the form.

You will, in my opinion, be paying a larger penalty by removing funds at this point in the cycle. Life itself moves in cycles and timming can be very important to your financial health. This market is about to provide you with some gains, but you have to be there to participate - try and prolong your draw down for the next 30 trading days to see what happens. Borrow the money short term if you have to, with the idea of paying it back later. If you had a Roth IRA you would avoid this problem.

I've seen these things happen with other people - you are not alone. Just try not to do it just yet. Good luck,

Dennis

 

[rockdj]

imported post

Dennis---Thanks much for the reply---the 10% doesn't really bother me that much but why did the TSP office tell me 20%? Not that it matters; I'd have to get some of it even if it was 50%!!! But I'm fortunate enough to have 4-5 weeks of sick leave before I go so I will have that 1 moth cushion you speakof short term.I've watched the TSP talk website for some time now but exactly what funds should I stay in this last month? I have $133,000built up. I've had it in very risky the last few years but if and whenit ever got to $135,000 I was going to go almost all "G." Any thoughts?

 

[Birchtree]

imported post

rockdj,

If a bear named Yogi comes knockin - he wants to put you in a bear hug and shredd your pants with his claws - escape by stomping his toes.

To answer your first question - the 20% is for taxes - uncle wants to be sure to get his share. In my opinion there are no risky plays in the TSP - that is why they were chosen. Now you can leverage your profits by being 100% long in a particular area, or you can dilute your leverage by diversifying into several. I currently am 100% C fund and plan to stay there until the cows come home. There won't be much opportunity to trade the momentum we are approaching. There will be another bear market in the future- but the future can be a long time from now. Best policy is to sit and let your money do the dollar cost averaging - leave the trading to the adrenalin guys. You will sleep better while you are healing. Hope that helps.

Dennis

 

[Guest]

imported post

In addition to the 10% you will also have to pay fed income tax and if applicable state income tax.

So it could be more then 50% depending on those factors.

This is the IRS top red flag at the moment so better off paying the tax.

Better off refinancing your mortgage at these rates if you have home equity.

Wish ya the best.

 

[rockdj]

imported post

Hi "wheels"--- send me your e-mail address under cover so I can thank you for your private reply that I got. my e-mail is rockdj@triwest.net



thanks again

 

[grandma]

imported post

rockdj wrote:

Hi "wheels"--- send me your e-mail address under cover so I can thank you for your private reply that I got. my e-mail is rockdj@triwest.net
thanks again

Rockdj - welcome to participating on the board - Why don't you just edit & erase' your post so your name & number aren't floating aound, and send him a `pm? Then you can do the e-mail thing ...left click on the name -

 

[Machinist Mate]

you might want to go to the site daveramsey.com and click on ELP and they will put you in touch with a local provider,and Dave is a honest man.I hope you will do well,as there is nothing worse than being hurt.

 

[GGal]

Seems to be a little bit of misinformation floating around here.

If you go on disability retirement, and are permanently and totally disabled, then take an early distribution from your retirement account, you should be able to have the 10% penalty waived.

At the time you take the early distribution, you should have an opportunity (probably a form) to tell them that you are totally and permanently disabled and unable to work.

The retirement account manager (TSP office, if that's what you have) should then put the proper code on your 1099-R that you will later receive which reflects the amount of the distribution. The code should flag it that you are disabled.

Of course, the distribution will be taxable and will go on your 1040 as income. But you should not also have to pay the 10% penalty. If the agency screws up your 1099-R and doesn't code it correctly, just get ready to make your case. Attach a statement to your return stating that the withdrawal was made early due to being permanently disabled and unable to work. Attach a statement from your doctor. Then, if you still end up getting a notice, respond with same information to the notice. If still not resolved, take all your information in to your local IRS office and ask for help to get it resolved.

Now, someone mentioned a deduction then for the 10% penalty, on the following year return. Sorry, this just is not true. If one does have to pay a 10% penalty on an early distribution, it is not a deduction in the following year or any year.

I believe someone is mixing this up with penalty on early withdrawal of savings. If you cash in a CD early, before it's maturity, then the bank charges you a penalty. That, you can deduct, as a deduction toward arriving at adjusted gross income.
But there is no deduction for the 10% penalty for early distribution from a retirement account.

Peaches