Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits

To qualify for the 10-year tax option, the plan

program pays that amount to you. If you roll over amounts

participant must have been born before January

into a traditional IRA, later distributions of these amounts

2, 1936.

from the traditional IRA do not qualify for the capital gain or

CAUTION

the 10-year tax option. However, capital gain treatment or

If you receive a single payment or you choose to receive

the 10-year tax option will be restored if the traditional IRA

your account balance in monthly payments over a period of

contains only amounts rolled over from a qualified plan and

less than 10 years, the TSP generally must withhold 20%

these amounts are rolled over from the traditional IRA into

for federal income tax. If you choose to receive your ac-

a qualified retirement plan.

count balance in monthly payments over a period of 10 or

To qualify for the capital gain treatment or 10-year

more years or a period based on your life expectancy, the

tax option, the plan participant must have been

payments are subject to withholding as if you are married

born before January 2, 1936.

with three withholding allowances, unless you submit a

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withholding certificate. See also

Withholding from Thrift

You can also roll over a distribution from a qualified

Savings Plan payments

earlier under Tax Withholding and

retirement plan into a Roth IRA. Although the transfer of a

Estimated Tax in Part I.

distribution into a Roth IRA is considered a rollover for

Tax on early distributions. Any money paid to you

Roth IRA purposes, it is not a tax-free transfer. See

Rollo-

from your TSP account before you reach age 59

may be

vers to Roth

IRAs, later, for more information.

subject to an additional 10% tax on early distributions.

Qualified retirement plan. For this purpose, a qualified

However, this additional tax does not apply in certain

retirement plan generally is:

situations, including any of the following.

•

A qualified employee plan,

You receive the distribution and separate from gov-

•

ernment service during or after the calendar year in

A qualified employee annuity,

which you reach age 55.

•

A tax-sheltered annuity plan (403(b) plan), or

•

You choose to receive your account balance in

•

An eligible state or local government section 457

monthly payments based on your life expectancy.

deferred compensation plan.

•

You are totally and permanently disabled.

The CSRS, FERS, and TSP are considered qualified re-

tirement plans.

For more information, see Tax on Early Distributions in

Publication 575.

Distributions eligible for rollover treatment. If you re-

Outstanding loan. If the TSP declares a distribution from

ceive a refund of your CSRS or FERS contributions when

your account because money you borrowed has not been

you leave government service, you can roll over any inter-

repaid when you separate from government service, your

est you receive on the contributions. You cannot roll over

account is reduced and the amount of the distribution (your

any part of your CSRS or FERS annuity payments.

unpaid loan balance and any unpaid interest) is taxed in

You can roll over a distribution of any part of your TSP

the year declared. The distribution also may be subject to

account balance except:

the additional 10% tax on early distributions. However, the

1. A distribution of your account balance that you

tax will be deferred if you make a rollover contribution to a

choose to receive in monthly payments over:

traditional IRA or other qualified plan equal to the declared

distribution amount. See

Rollover

Rules, below. If you

a. Your life expectancy,

withdraw any money from your TSP account in that same

year, the TSP must withhold income tax of 20% of the total

b. The joint life expectancies of you and your benefi-

of the declared distribution and the amount withdrawn.

ciary, or

More information. For more information about the TSP,

c. A period of 10 years or more,

see Summary of the Thrift Savings Plan, distributed to all

federal employees. Also, see Important Tax Information

2. A required minimum distribution generally beginning

About Payments From Your TSP Account and Tax Treat-

at age 70

ment of TSP Payments to Nonresident Aliens and Their

3. A declared distribution because of an unrepaid loan,

Beneficiaries, which are available from your agency per-

if you have not separated from government service

sonnel office or from the TSP.

(see

Outstanding loan

under Thrift Savings Plan,

The above documents are also available on the

earlier), or

TSP website at Select “Forms &

4. A hardship distribution.

Publications.”

In addition, a distribution to your beneficiary generally is

not treated as an eligible rollover distribution. However,

Rollover Rules

see

Qualified domestic relations order (QDRO)

and

Rollo-

vers by surviving

spouse, and

Rollovers by nonspouse

Generally, a rollover is a tax-free withdrawal of cash or

beneficiary, later.

other assets from one qualified retirement plan or tradi-

tional IRA and its reinvestment in another qualified retire-

Direct rollover option. You can choose to have the OPM

ment plan or traditional IRA. You do not include the amount

or TSP transfer any part of an eligible rollover distribution

rolled over in your income, and you cannot take a deduc-

directly to another qualified retirement plan that accepts

tion for it. The amount rolled over is taxed later as the new

rollover distributions or to a traditional IRA or Roth IRA.

Publication 721 (2011)

Page 13

Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits - 2011 Page 13

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