TSP Tax Question

[dave123]

I'm retired (since June of 2020) and have not touched my TSP. I'm guessing that my tax liability right now will be about 6k the next time I do taxes as it's just my pension and a part time job.

I'm seriously considering going solar for my home (my power bill averages around 380.00 a month).

There is a tax credit that must be used in the first 18 months from the government to the tune of 26% of the solar system. My system would cost about 99K and should get rid of 100% of my power bill. This includes a new roof, so it's a nice time to get a "rebate" on the roof.

So, what if I take out enough TSP this and next year so that the solar credit will eat up all the taxes I would pay on the withdrawal? I'm going to pay taxes on the TSP withdrawal anyway; I'm thinking use the credit to avoid a good portion of this tax.

Do you think this is a good idea? Does anyone know the math for figuring how much I would have to take out of my TSP to eat up all my tax credit?

The plan would be to put the money I take out of TSP into my brokerage account, not use it to pay the solar system. I prefer the 25 year 1% loan they are offering.

P.S. I know that the "break even" on a 100k system would be years and years, but the loan amount would be about 80.00 less than my current power bill a month, so I see it as a win. This number should get better for me over the years as power costs go up. I plan to live in this home until I die, so the added money does not worry me as far as resale of the home.

Good idea? Bad idea? Why? What about the math?

Thanx!

 

[Bullitt]

What happens in ten years when your solar panels break and the company is out of business? What makes you think power costs will indefinitely go up? If more use solar panels shouldn't that drive down the price of all electricity?

This reminds me of the advice to buy a house for the tax write-off. The write-off doesn't offset the money spent on the mortgage. $380 a month in electricity is absurd, but hey, even so it would take you 20 years to break even. I'd be willing to bet the solar panels will need to be replaced by then anyway, just like a furnace or hot water tank.

I think the tax questions would be better answered by a CPA.

Are you the guy that bought the boat and house in retirement? I can't remember.

 

[dave123]

Yes, I'm the guy

Thanx for your advice. As always, you make excellent points.

I asked the sales guy the same thing you did. The warranty is 25 years, and the parts are through the manufacturer. So if they went out of business, of course things would be difficult, but perhaps not impossible. They have been around 20 years, and have an A+ rating with the BBB. I found only 1 complaint from 3 years ago, and the company responded and it appears they made it good.

I guess anything in this world has some inherent risk. Heck I drive a Jeep, what if Fiat (who owns it) goes out of business?

Actually, 380.00 is kinda low, my last power bill was higher. If you look historically, I'm pretty sure that utilities go up much more than they go down. My power company just requested a 139million state wide increase, which will probably be approved. It's a pretty good bet that my bill will not go down, but you never know. I do know that I'm projected to have a smaller loan payment than power bill from day one.

I was glad when I saw that you had replied, because I know from my previous threads that you give good, sobering advice. I'm always open to your input, as well as others here.

I may need to get with a CPA, but I'm still hoping to get an answer to my initial question of whether or not I can get the total tax credit, which is a big part of the financial puzzle.

If I subtract the total tax credit, and the money I would pay for the new roof from the total (which I need), the solar is actually 73, not 99k.

[COLOR=rgba(0, 0, 0, 0.87)]Base Price[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]Based on a 22 kW installation[/COLOR]

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$81,318.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]






[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

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[COLOR=rgba(0, 0, 0, 0.87)]ASPHALT SHINGLE ROOF HOME & DETACHED GARAGE[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]1 x $18,505.00[/COLOR]

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$18,505.00[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]






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Gross Cost[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

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$99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]


-$0.00


$99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

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[COLOR=rgba(0, 0, 0, 0.87)]Federal Tax Credit[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]Residential Renewable Energy Tax Credit - 26%[/COLOR]

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-$25,954.12


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[/COLOR]​

[COLOR=rgba(0, 0, 0, 0.87)]

Cost after Rebates & Incentives*[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

[/COLOR]​

[COLOR=rgba(0, 0, 0, 0.87)]$99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

[/COLOR]
[COLOR=rgba(0, 0, 0, 0.87)]-$25,954.12

[/COLOR]
[COLOR=rgba(0, 0, 0, 0.87)]$73,869.41

[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

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[nasa1974]

Does your utility buy back any power you might put back into the grid?

 

[nasa1974]

I looked into solar a few years back along with the government tax credits. At the time I wasn't looking to purchase the battery system with it. I would now however. The price wasn't bad, I think around 23K and the solar panels were Canadian built and I think the warranty was 20 years. The break even point was 12 years. Part of the problem here is that the local utility didn't offer any payback on excess power going back into the grid. The final decision came down to solar or fix a leaky basement.

 

[PessOptimist]

What nasa said.

Actually, 380.00 is kinda low, my last power bill was higher.

If I subtract the total tax credit, and the money I would pay for the new roof from the total (which I need), the solar is actually 73, not 99k.
[COLOR=rgba(0, 0, 0, 0.87)]Base Price[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]Based on a 22 kW installation[/COLOR]
$81,318.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]






[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

---

​

[COLOR=rgba(0, 0, 0, 0.87)]ASPHALT SHINGLE ROOF HOME & DETACHED GARAGE[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]1 x $18,505.00[/COLOR]
$18,505.00[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]






[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

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Gross Cost[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]
$99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]


-$0.00


$99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

---

​

[COLOR=rgba(0, 0, 0, 0.87)]Federal Tax Credit[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]Residential Renewable Energy Tax Credit - 26%[/COLOR]

[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]


-$25,954.12


[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

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[COLOR=rgba(0, 0, 0, 0.87)]

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[/COLOR]
[COLOR=rgba(0, 0, 0, 0.87)]
Cost after Rebates & Incentives*[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

[/COLOR]
[COLOR=rgba(0, 0, 0, 0.87)]$99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

[/COLOR]
[COLOR=rgba(0, 0, 0, 0.87)]-$25,954.12

[/COLOR]
[COLOR=rgba(0, 0, 0, 0.87)]$73,869.41

[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

[/COLOR]

Wow. $380+ seems like a big electric bill. Don’t know how big is the house, where you live or what kind of heat you have.

You probably have checked all this out but any time I hear someone considering solar and $0 electric I advise them to carefully check out the electric company’s current rate structure and rules. Right now, here in AZ the structure has been modified so no one pays $0. The old “net metering” structure is gone and only grandfathered. Net metering means in and out and they credit you for what you produce. New tariffs are called RCP and EPR. Look em up.

Your inserted files came through as HTML code only, at least for me.

$73k seems a lot for a 22kW system unless it has a storage capability. Plus that is a lot of sq feet. With no storage system aka batteries you go down when the grid does so no bragging rights about still being “up”

Many people want to go solar because it seems like the right thing to do. I’m not against that at all. I am cautioning about the expectation of $0 electric bills.

PO

 

[Bullitt]

Thing about the CPA is taxes have gotten so complicated, especially with the Secure Act. Accountants are still scrambling to get everything figured out. The best you can do is estimate what tax bracket you will be come 2021 tax filing season then go from there. Depending on how complicated your return is, you might be able to ball park how much you'll owe.

Solar is very compelling, but I just don't think we're there yet.

I know someone with a farm and he put the panels up on his farmhouse roof (aluminum roof). One year we had one of the sunniest years in recorded history in our area and he said he was around net zero, but if I remember, he was still in some honeymoon phase where the utility company was paying bonus money for any surplus. He also said he'd never put those up on his actual house roof (snow, ice dams, shingles may not completely dry causing decay, etc.) and I agree there. Another summer was rainy and cloudy, a more average summer, and he wouldn't tell me specifics but did say it wasn't a bumper year for solar.

I see houses in my neighborhood periodically getting them installed and it just seems like a Tesla vehicle right now. A niche product that will be manufactured by every major auto maker in 10 years and will be vastly better than the Tesla of today.

I'd look into getting an insulation company to give you an assessment of your home's efficiency first. You might have a drafty or poorly insulated house causing your electric to be where it is.

 

[evilanne]

This is the last year (unless they extend) so if you are going to do it, now would be the time. Credit is 22% for systems installed in 2021, so 73K X 22% = $16K credit or tax liability needed to take full advantage of the credit. If you currently have $6K liability, you need an additional 10K. Since you can carry it over to next year, you really need to only come up with $4K in additional taxes assuming your situation is same next year. How much you would need to withdraw depends on what your current marginal tax rate is and where you are in the tax bracket. Taxes are $1200 for every 10K in 12%, 2200 for every 10K in 22% bracket etc. Look at the tax brackets....it is pretty easy to calculate the taxes.

I'm retired (since June of 2020) and have not touched my TSP. I'm guessing that my tax liability right now will be about 6k the next time I do taxes as it's just my pension and a part time job.

I'm seriously considering going solar for my home (my power bill averages around 380.00 a month).

There is a tax credit that must be used in the first 18 months from the government to the tune of 26% of the solar system. My system would cost about 99K and should get rid of 100% of my power bill. This includes a new roof, so it's a nice time to get a "rebate" on the roof.

So, what if I take out enough TSP this and next year so that the solar credit will eat up all the taxes I would pay on the withdrawal? I'm going to pay taxes on the TSP withdrawal anyway; I'm thinking use the credit to avoid a good portion of this tax.

Do you think this is a good idea? Does anyone know the math for figuring how much I would have to take out of my TSP to eat up all my tax credit?

The plan would be to put the money I take out of TSP into my brokerage account, not use it to pay the solar system. I prefer the 25 year 1% loan they are offering.

P.S. I know that the "break even" on a 100k system would be years and years, but the loan amount would be about 80.00 less than my current power bill a month, so I see it as a win. This number should get better for me over the years as power costs go up. I plan to live in this home until I die, so the added money does not worry me as far as resale of the home.

Good idea? Bad idea? Why? What about the math?

Thanx!

 

[dave123]

Thank you all very much for the great input.

First of all, sorry about the HTML code. By the time I noticed it, someone had replied, and I could no longer edit.

A few answers here:

First of all, yes 380.00 is crazy. It's a pretty big house with a ton of windows and I'm sure new windows, etc. could help, but my primary issue is the heater for the pool, which added about 80.00 a month. I figured that solar would be better than spending 25k on windows, ect. and being disappointed when the bill failed to move as much as I hoped.

But you guys got me thinking, I went to a 3rd roofer and a 5th solar company. Tesla has come in with virtually the same system, but at 47k befor the tax credit. I would still need a roof, but that was always part of the deal as mine is about due.

This brings my payment even lower. I don't see any scenario where I won't have a smaller payment than my utility bill would have been unless their projected numbers are WAY off.

Good point on the company going out of business ect. I feel pretty good about Tesla as a company that will be here, and do a quality job. They promised that they would only use their people to do the job, which I like.

We have net metering, and I would get some back. I checked. My bill would still be about 12.00 to be hooked into the system. I would sell very little back, so that won't help much, if any.

Great info, Evilanne; I've checked and I'm pretty sure the tax credit is 26% this year, and 22 next year. I took Bullitt's advice and contacted a CPA. Not sure the numbers yet, but I still think this is a good time to take out some TSP without a tax hit.

I'm not 100% sold either way, but after I get firm numbers, I'll report back in case anyone else is considering solar.

And hopefully, I can get the math figured..

 

[dave123]

I can't get this to edit, so another post:

p.s. Great idea Bullitt; I'm going to check with an insulation company, see if I can get an estimate - no sense leaving any stone unturned.

 

[Bullitt]

Dave, as usual, hell of a story. Thanks for sharing.

 

[PessOptimist]

Hi Dave. I hope you are not growing too weary of all this advice and comment. We are just trying to help.

I just read something that says the tax credit will remain 26% through 2021 and drop to 22% in 2023. The post links to an amendment to an amendment to H.R. 133 and is over 5000 pages long so good luck. I don’t know if you ever tried to follow a bill through congress but it is not straight forward.

Like Bullitt said, hell of a story and thanks for sharing.

FWIW, back in 2012 I bit on the local electric providers offer for a home energy checkup. The house was then 15 years old and supposedly met the energy star requirements at the time it was built, 1997. It did cost me IIRC $99. The contractor was thorough and identified a lot of things. The major one was that there was no insulation at all in the attic crawl space on the east end of the house. This was a difficult space to get to for me in my defense They took lots of photos up there which were identifiable as being my house. The second biggie they found was over the gas fireplace the space was open to the attic and therefore hot air poured in to the house. I stupidly thought that was because I often didn’t shut off the pilot light but after shutting it off hot air was still pouring in. Third thing they found was several exhaust fans had no or inoperable flapper valves to stop air flow from the outside. They did a flow test but don’t think they did infrared photos.

Some of this seems counterintuitive as hot air rises. The contractor proved their point by me feeling the hot air flowing in through the fireplace and vents.

To finally get to the bottom line, I had the same contractor install insulation both mats and blown in after fixing the other stuff and electric bill decreased by about $100 per month. Had been approaching $500. About that time our A/C system started always needing repair so we replaced it with a higher SEER model. Since then our electric bill has been peak in the low $300s and averages below $200. Just saying. Do the energy audit but look to your utility company first. It may seem like they want you to use more so they bill more but they have a stake in reducing peak usage.

Good luck in your decision. There is something good if you have a system that provides your house with power if neighbors are down. Glad to see you are realistic about the payback.

PO

 

[Jackbnimble]

More to think about/talk to your CPA about.
1) These solar credits carry forward, so if you don't use them in the first year, you can always use them in the following years. They are not refundable. You can research on IRS.GOV or on the internet.
2) As for taking money out of your TSP, I would use the tax rates to your benefit. Instead of taking out a large sum in one year, which could push you up to a higher tax bracket. You could find your bracket and see where your taxable income falls in it. Then take an amount that pushes your taxable income up to the next tax bracket, but not into it. Then do this each year until you have the amount you want outside of TSP.
Or: My parents took money out of their IRAs every year, as a tax minimizing plan. Instead of waiting for the RMDs start and possibly being in a higher bracket. This works best if you are disciplined and put it in an after-tax investment account. If you are going to spend it, it probably makes sense to leave it in the tax deferred vehicle.

https://www.thebalance.com/tax-planning-strategies-to-shift-income-to-lower-brackets-2388990

As always talk to your CPA before you make some of these life decisions. Some things can't be undone.

 

[2moryrs]

We live in Eastern Oregon and installed Solar in 2017. It was through an incentive program. We were limited to a system based on a two-month electric bill average usage. There are only two of us so our usage was pretty minimal. We also have propane for heat and hot water.
At the time, the tax credit extended over five years. Due to our ages we barely had enough State Income tax to offset the credit. Our system is a 4.6kW DC Solar Electric System, which we installed on our Dog Kennel/Garage roof, consisting of 14 Photovoltaic Array panels. Our system before credits was approximately $13K. We are pleased with the system so far. In 2018/2019 our electric bill was -0-. In 2020 it was $10.00/mo. In 2021 it is $24 and change.

We were not at liberty to put in any size system we wanted. Electric Company only authorized a system the size you actually "needed" not wanted.

Hope this helps others.

 

[dave123]

Long delay here, but I wanted to wait until I got my first "all solar" bill before checking back.

My bill was only the 12.00 for being connected to the grid. I also banked 233 KWH. These are credits that can be used later, and at the end of the year are cashed out (2.5 cents for 1 KWH). I'm thinking (since we are in the rainy season now) that I will make enough power to cover my connection fee and have zero power bill. This should remain constant even if (when) power rates go up.

In addition, my federal solar credit will ensure that I pay no taxes for 5 years (that's how long it lasts). I'm going to monitor the taxes and take out what I can from TSP so that I use the whole credit and save some tax money on TSP withdrawal. I'm going to follow jackbnimble's excellent advice and try to get just enough to keep from going up a tax bracket.

To further muddy the waters, if I don't make a balloon payment by October of 2022, the solar payment will go up. I've not yet decided how to handle that. I'm going to list my options, and would love opinions:

1. Pay the balloon (from TSP), lock in the lower solar payment for the life of the loan (25 years).
2. Let the payment go up. It should still be lower than my power bills were. Keep the money in TSP (other than what I can get tax free).
3. Take the tax free money out of TSP and stick it in the market (my personal stocks beat TSP last year).

Thanx

 

[Bullitt]

1. Pay the balloon (from TSP), lock in the lower solar payment for the life of the loan (25 years).
I like this idea if you plan on staying in the house for a while. Rates are so low right now that if they went down it wouldn't matter much, but if they went up, it would be noticeable.


2. Let the payment go up. It should still be lower than my power bills were. Keep the money in TSP (other than what I can get tax free).
Good idea, but less uncertainty behind door #1.


3. Take the tax free money out of TSP and stick it in the market (my personal stocks beat TSP last year).
If this money is going to a taxable account, you will still be paying taxes on any dividends and capital gains (if you sell) or mutual fund distributions (yearly). A positive with the taxable account could be lowering your tax bill by tax loss harvesting.

 

[47_Dodge]

Long time viewer, short time poster..........

Could someone chime in and let me know if I did my first TSP withdrawal incorrectly ?

I retired this past October and was able to set up my monthly TSP withdrawal the first week of November. Today I received my first installment payment and noticed that the TSP did not take out any federal taxes. When I log into my TSP account, the informational screen reads "your current tax withholding is at a married rate with 0 allowances".

There is a tab that reads, "change the tax withholding of my installment payments" which when clicked gives one the following options:

1. Default withholding of married person with 3 dependents.
2. No withholding.
3. Withholding based on my marital status and withholding exemptions:
4. Withholding based on my marital status and withholding exemptions
and withhold an additional dollar amount of $ ____.00 from each payment.

Did I select the wrong option ? Currently my wife and I are in the 22% tax bracket and I want to ensure that enough taxes are withheld so I'm not hit with a huge tax bill at the end of this year or next year. Both kids are grow and no longer living in our house.

I did call TSP hotline line and was informed that since it was at the end of the year, they would not withhold any federal taxes and would make adjustments to my withholding the first of next year. Doesn't seam right.

The lady at TSP also stated that I would have to get my wife's signature again with notary.

Thank you for your input.....

Not sure if I posted this on the correct thread. If not, please let me know

 

[Scout333]

Just a thought, I had a similar problem so I just adjusted the withholding on my civil service retirement to compensate for the TSP withdrawals I was taking out. You may be FERS or something else but easy enough to go on the OPM site and change your withholding amounts. Worked great for us! Good luck!

 

[47_Dodge]

Good option to have. I spoke to my tax accountant and he suggested that we wait until January's TSP installment is deposited and review the tax withholding. Thank you for replying.