Thread: TSP NOT tax deferred in some states?

Originally Posted by Yankee6

I live in Arizona and read a few things on line that said this was true. These are some of the links that made me think this is a possibility.

http://dab.nfc.usda.gov/pubs/docs/ta...xaz/taxaz.html

http://www.youngfeds.org/messageboar...fc55efe884bef1

If this is true thats ridiculous to be taxed on both ends. It defeats the whole purpose of the plan. Anyone have any definitive info on this? Thanks.

From TSP web site:
What are the immediate benefits of making tax-deferred contributions to the TSP?
Tax-deferred contributions are "before-tax" contributions. When you participate in the TSP, you make before-tax contributions. That means the money you contribute is taken out of your pay before Federal and, in almost all cases, state income taxes are withheld. Therefore, the amount used to calculate your taxes is smaller and you pay less in taxes now. Deposits to a regular savings account do not provide such an advantage.
Your TSP contributions are excluded from the taxable income reported on IRS Form W-2, Wage and Tax Statement, that you receive from your agency each year. Thus, you do not report them on your annual Federal tax return. This special tax treatment does not affect your salary of record for other Federal benefits — such as the FERS Basic Annuity, the CSRS annuity, or life insurance — nor does it affect Social Security or Medicare taxes or benefits.
By paying less current income tax, you have more take-home pay than if you had saved an equal amount that was not excluded from taxable income. To give you an idea of the advantage of saving through before-tax contributions to the TSP, let us suppose, for simplicity, that you are a CSRS participant earning basic pay of $30,000 a year. Let us also assume you are in the 15 percent tax bracket.
If you contribute 5 percent each pay period (or $1,500 per year) to your TSP account, you will owe $225 less (15% (your tax bracket) x $1,500) Federal tax in the current year than if you had not contributed to the TSP. This is because when you save through the TSP, your contributions are not included in the amount on which your tax is calculated. The difference in your tax bill will be even greater if the state in which you live permits tax-deferred savings, as most states do

Yes I read that already. It doesnt give definitive answer which states do not allow it. If this is true as it seems to be then I guess its time to only contribute up to agency matching. Its really criminal for them to be allowed to tax us when we contribute and when we withdraw.

I can't confirm that, but if it is true, it would only be for state tax I assume. Arizona can't tell you how to file your Federal tax.

This site should answer your questions:

http://www.retirementliving.com/RLtaxes.html

Thanks, but Ive also already been to that site last week after finding a link on this site in a post. It does not say anything under Arizona about allowing or not allowing retirement plans to be tax deferred. I wish it was not so difficult to find this information.

Originally Posted by Yankee6

Thanks, but Ive also already been to that site last week after finding a link on this site in a post. It does not say anything under Arizona about allowing or not allowing retirement plans to be tax deferred. I wish it was not so difficult to find this information.

Try this...

http://www.theazcpa.com/contact.php

I think I answered my own question by looking at my W-2 from last year. Theres a box 12 that shows the amount I contributed to TSP and its not included in my taxable income. Thanks for all who tried to help.

If your state wages are larger then your Federal wages (on your w2),
pre-tax is only for Federal Tax purposes. The State will tax the higher
income in NJ under state wages. Some states like South Carolina give
you a state tax credit for wages under (est) 74000.00 on your 1099R.
ie.... SC will not tax state wages under the 74k (est) figure.

Originally Posted by Yankee6

I live in Arizona and read a few things on line that said this was true. These are some of the links that made me think this is a possibility.

http://dab.nfc.usda.gov/pubs/docs/ta...xaz/taxaz.html

http://www.youngfeds.org/messageboar...fc55efe884bef1

If this is true thats ridiculous to be taxed on both ends. It defeats the whole purpose of the plan. Anyone have any definitive info on this? Thanks.

1) Do you have a source that shows which states exempt federal pensions from state income tax?

2) 1) Do you have a source that shows which states exempt TSP distributions from state income tax?

Many thanks,

Ed

Originally Posted by Ed

1) Do you have a source that shows which states exempt federal pensions from state income tax?

2) 1) Do you have a source that shows which states exempt TSP distributions from state income tax?

Many thanks,

Ed

Nuut gave this link in his post above:

http://www.retirementliving.com/RLtaxes.html

It's painful to go through all of them, but if you are interested in a few states, you could check them out. GL

Thank you for the web site; very helpful.

Ed