Q&A: Does anyone out there know anything about 2010 taxes & “early distributions” from a Thrift Savings Plan?
Question by buggaboo: Does anyone out there know anything about 2010 taxes & “early distributions” from a Thrift Savings Plan?
I’ve searched our 1040A booklet, but I don’t see anything about how to report receiving an “early distribution” from a TSP.
I don’t know whether the distribution is something that needs to be claimed as part of our income, or if it’s already part of the amount showing on my husband’s W-2 under “Wages, Tips, Other Compensation.”
On my husband’s 1099-R form the amounts under “gross distribution” & “taxable amounts” are identical but the “Federal Income Tax Withheld” amount is quite a bit smaller. The only other info on the form is in Box 7 – a distribution code that either shows the number “1″ or, otherwise, is a lower-case “L.”
This is all a foreign language to me & I’m on the verge of pulling my hair out! Anyone who knows anything about this please, pleeease help if you can & thank you bunches!
Best answer:
Answer by mrreliable3599
A 1099-R with Code 1 means an early distribution from a qualified retirement plan.
You report the distribution as income on the pension line on your return. You’ll owe an additional 10% penalty for early distribution since you’re not 59 1/2.
If you have certain qualified expenses, such as medical expenses in excess of 7.5% of your income or qualified education expenses, you’ll qualify for an exception to the 10% penalty by filing Form 5329, but you’ll still owe regular income tax.
The best help you can get is advice to take your stuff to a qualified tax professional. If you have anything more than W2s, you have about 100% chance of messing something up. If you do qualify for one of the exceptions to the 10% penalty, paying someone a couple hundred bucks to review your information, prepare your return, and e-file it, will put money in your pocket.
Almost every client I see who prepared their taxes themselves in prior years missed something and left money on the table. Most times I end up amending their returns for refunds, which more than pay for my fee.
Tax law is extremely complicated, they change laws constantly (last major tax law change on December 17, 2010, affecting the standard deduction, sales tax deduction, and tuition deduction), and they set it up so if you miss something you lose.
Don’t be fooled by software companies that make you think they can instantly turn you into a tax expert by buying their product.
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Thrift Saving Plans are similar to IRA plans in that taxes are deferred until withdrawal. Therefore you owe taxes on the full amount reported on 1099-R (it is not reported on the w2). The amount of federal income taxes withheld is just a percentage that is withheld and may or may not cover your tax liability.
Early withdrawals may possibly also incur a 10% early withdrawal penalty. The code in box 7 indicates that an early withdrawal was taken.
First of all, a 1040A booklet isn’t going to help you at all if your filing 1099, deductions and laws are different between the two.
Second, if it is not showing up on your W-2 already, then you Will have to pay taxes on it. You need to find out by calling your TSP provider and asking them if it was included in the totals on your W-2.
either way, it is considered income and you must pay taxes on it.
Third, you need to consult a tax Professional–Face-to-face, and discuss how to fill out your taxes if you are having trouble. not asking for general advise on here. People on here will get you in trouble.
and trust me, the IRS isn’t something to play with. I wouldn’t take any chances on something like this.