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Thread: TSP Tax Question

  1. #13

    Default Re: TSP Tax Question

    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-plann...ackets-2388990

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

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  3. #14

    Join Date
    Dec 2006
    Location
    Oregon
    Posts
    268

    Default Re: TSP Tax Question

    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.
    No God, No Peace. Know God, Know Peace.

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  5. #15

    Default Re: TSP Tax Question

    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

  6.  
  7. #16

    Join Date
    Sep 2006
    Location
    Upstate NY
    Posts
    3,876
    Blog Entries
    46

    Default Re: TSP Tax Question

    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.

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  9. Default Re: TSP Tax Question

    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

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  11. #18

    Default Re: TSP Tax Question

    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!


  12.  
  13. Default Re: TSP Tax Question

    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.

  14.  
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