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Hi All,
Am I understanding this correctly? Regardless, of my income level, my distributions from my retirement accounts will be automatically taxed at 20%?
Please tell me that isn't so. Would make my retirement funds look a lot less.
Thank you.
it’s taxed at what ever level your total income is taxed at if it is a traditional ira or 401k and not a roth . unless it is a roth its is untaxed money
not sure where you are getting 20% from …it could be more or it could be less ..it gets added to all other income that is taxable and taxed at the appropriate bracket
Money taken each year out of your IRA is taxed as ordinary income at both the state and national level. The more you take out each year the higher your income bracket range.
And if you’ve been good about saving via a 401K account you might be earning more dollars in retirement than you were previously to that. So think about prepaying taxes via a Roth if that might happen to you.
If a you aren’t on Medicare yet, money taken from your IRA can put you above the limit to qualify for a subsidy on Obamacare, if insurance is an issue.
Hi All,
Am I understanding this correctly? Regardless, of my income level, my distributions from my retirement accounts will be automatically taxed at 20%?
Please tell me that isn't so. Would make my retirement funds look a lot less.
Thank you.
No.
As others have mentioned it depends on your total income. IF the retirement distribution is from a tax deferred account like a 401-k or traditional IRA. Roth IRA's are tax free.
The 20% is probably the tax withholding.
You can ask to withhold nothing, but your still on the hook for paying the taxes when you file. It only works when you have a business or losses to offset the income.
There is ONE EXCEPTION.
The Federal Thrift Savings Plan will AUTOMATICALLY withhold 20% in spite of what the law says. When I questioned them on this, they told me that they did NOT need to follow Federal law.
Hmmm, we have serious problems if the Federal government thinks it is exempt from the laws of the land!!
Anyway, that is where you the 20% number is coming, is the tax withholding on the withdraw. If your a high income individual you will probably end up paying closer to 40% on the withdraw.
The Federal Thrift Savings Plan will AUTOMATICALLY withhold 20% in spite of what the law says. When I questioned them on this, they told me that they did NOT need to follow Federal law.
I don't know where you are getting that from. I have been withdrawing from TSP since I retired in 2005 and they have never withheld anything. Not even a penny. I didn't need them to as I increased the with-holding from my FERS payments.
Oh, maybe you mean that "automatic" with-holding is not mandatory, that you can opt out as I did.
Or maybe the rules have changed at TSP. I stopped using TSP when they changed to the new and dysfunctional system, around October-November 2022, and I moved all my TSP money to an IRA at PFCU, where they also don't do any with-holding unless I ask them to.
The new management at TSP seems to be making up their own rules, part of why I bailed out. PFCU is vastly much easier to work with than TSP.
I don't know where you are getting that from. I have been withdrawing from TSP since I retired in 2005 and they have never withheld anything. Not even a penny. I didn't need them to as I increased the with-holding from my FERS payments.
Oh, maybe you mean that "automatic" with-holding is not mandatory, that you can opt out as I did.
Or maybe the rules have changed at TSP. I stopped using TSP when they changed to the new and dysfunctional system, around October-November 2022, and I moved all my TSP money to an IRA at PFCU, where they also don't do any with-holding unless I ask them to.
The new management at TSP seems to be making up their own rules, part of why I bailed out. PFCU is vastly much easier to work with than TSP.
It was a cluster.
It was after 2022. Last year.
Lots of retired federal employees moved out of TSP because of BlackRock management. Just awful.
I asked to talk to a supervisor...answer NO. Its a different department.
I asked to talk to the different department....NO. They will call you.
A month later, no call. Call again. They look up my case number. "Oh we closed your case, our computer system mandates the withholding".
My comment..."that not the law, and why didn't you call me back".
Their comment...."doesn't matter about the law, our computer system won't let us do it. So we closed your case.
My comment...."why didn't you call me??
Their comment...."why should we call you, we closed your case".
Lots of retired federal employees moved out of TSP because of BlackRock management. Just awful.
I asked to talk to a supervisor...answer NO. Its a different department.
I asked to talk to the different department....NO. They will call you.
A month later, no call. Call again. They look up my case number. "Oh we closed your case, our computer system mandates the withholding".
My comment..."that not the law, and why didn't you call me back".
Their comment...."doesn't matter about the law, our computer system won't let us do it. So we closed your case.
My comment...."why didn't you call me??
Their comment...."why should we call you, we closed your case".
You can't make this stuff up!!!!
So much for making sweeping broad brush statements. Details can be important. You expanded a very specific subset of federal retirees to all of them. I too am a civilian fed who contributed to the TSP for over 35 years. I set up and adjusted withholding for myself. I started taking withdrawals from my TSP account in retirement long before your 2022 cluster. The government has never withheld anything.
We are taxed at 85% of our SS, we must take RMD, and she has a retirement income, for a total of about $150K to $170K.
Our total adjusted income tax is about 12%. For a single person it would be different I believe. Our SS is low we took it at age 62.
Last edited by txfriend; 12-31-2023 at 03:06 PM..
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