Re: [TSPStrategy] How To Pay Less Taxes

.......a few don't touch TSP withdrawals. ...

Which states don't touch TSP withdrawals?

------Remember that part of your federal annuity is non-taxable----

Does anyone know %% of fed annuity isn't taxable?

Thanks

-----Original Message-----
From: sarah_oz via groups.io <sarah_oz=yahoo.com@groups.io>
To: TSPStrategy@groups.io
Sent: Sat, Mar 20, 2021 12:33 pm
Subject: [TSPStrategy] How To Pay Less Taxes

You Have More Time to File Your Taxes. Here's How Not To Pay Too Much

By Tammy Flanagan

March 18, 2021

Usually, March 15 is about the time many people realize they need to get their taxes done to meet the April 15 deadline. But this week, the IRS extended the filing date to May 17. 

Of course, if you're due a refund, you may not want to wait. But if not, you've got a little breathing room. And if you need even more, you can request an extension until Oct. 15 by filing Form 4868. But remember, that form doesn't grant an extension of paying taxes due. Taxpayers should pay by May 17 to avoid interest and penalties.

It's important to know the specific rules for taxes on retirement benefits. Many federal retirees end up paying more taxes than necessary because they're unaware of how to compute the tax-free portion of their government retirement benefit or the portion of their Social Security benefit that is non-taxable.

Federal retirees can use the following resources to find information about taxes on their benefits and withdrawals from the Thrift Savings Plan:

• IRS Publication 721: Tax Guide to U.S. Civil Service Retirement Benefits
• Tax Information for Seniors and Retirees from the IRS
• Important Tax Information About Payments From Your TSP Account from the TSP
• Income Taxes and Your Social Security Benefit, from the Social Security Administration
• Members of the National Active and Retired Federal Employees Association should watch for the April issue of NARFE magazine for the organization's annual state tax roundup

Here is an updated list of tax planning tips for federal retirees from certified public accountant Bob Leins:

• Know your federal and (if applicable) state income tax brackets. This is necessary to project your cash flow in retirement. Also, you should make sure your tax withholding is appropriate. 
• To get into a lower tax bracket you'll need tax credits and tax deductions. The standard deduction is a specific dollar amount that reduces your taxable income. In 2020 the standard deduction is $12,400 for single filers and married filing separately, $24,800 for married filing jointly and $18,650 for head of household. Tax credits are a dollar-for-dollar reduction in your income tax bill. If you have a $2,000 tax bill but are eligible for $500 in tax credits, your bill drops to $1,500.
• Plan carefully before withdrawing funds from your TSP. Should you take funds from the TSP to pay off a mortgage or put a down payment on a home? Most likely the answer is no, because withdrawals from the TSP generally are fully taxable (with the exception of the Roth TSP option). 
• Remember that Social Security benefits are very income tax-efficient. At the federal level, they are at most 85 percent taxable. And in many states, Social Security income is nontaxable. The Tax Foundation provides a map of states that tax Social Security benefits.
• If you're planning to retire early in the calendar year, think about front-loading your TSP contributions. That means contributing up to the maximum elective deferral limit ($19,500 in 2021, plus $6,500 in catch-up contributions for those turning 50 or older) prior to retirement.
• If you're going to start a new non-federal job that also offers a retirement savings plan with matching employer contributions, then you should be aware of how the annual limit on elective deferrals will be applied. The elective deferral and catch-up contribution limits apply to all contributions you make to the TSP and most other employer-sponsored defined contribution plans. If you exceed these limits by contributing to more than one employer plan, you can request a refund from the TSP. To learn more, read the fact sheet Annual Limit on Elective Deferrals. 
• If you are considering moving to another state in retirement, study up on how that state treats retirement income. Some don't tax annuities, some leave Social Security benefits alone and a few don't touch TSP withdrawals. Reference Kiplinger's Taxes in Retirement: How All 50 States Tax Retirees.
• Initial federal annuity payments are subject to federal income tax and state income tax in most states. Be aware that federal tax can be withheld from the initial annuity payments during the adjudication period—the time during which your retirement is being processed. 
• Be aware that employees and former employees can transfer certain funds to the TSP. These can include the taxable portion of traditional IRAs, 401(k) and 403(b) plans and retirement plans for the self-employed.
• Remember that part of your federal annuity is non-taxable. The Office of Personnel Management generally calculates the nontaxable portion at the end of each tax year. 
• Retired federal law enforcement officers should pay special attention because they are generally allowed additional tax benefits as retired public safety officers. This includes an exception to the tax penalty for withdrawals from the TSP prior to age 59 ½ (as long as they separate from federal service in the year they reach age 50) and the ability to write off up to $3,000 in health insurance or long term care insurance premiums.
• From a tax perspective, the best date to retire is the one that maximizes your federal benefits and your personal finances, while minimizing your income tax. A mid-year retirement is beneficial for some employees because they will have six more months on the job with a higher salary than the annuity (in most cases), possibly a bigger high-three average salary, and at least a small chance of a better tax deduction on your annuity.

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By Tammy Flanagan

March 18, 2021

https://www.govexec.com/pay-benefits/2021/03/you-have-more-time-file-your-taxes-heres-how-not-pay-too-much/172772/

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