NARFE hears about taxes on retirement funds

Former Internal Revenue Service agent Mary Sordi spoke to members of Coastal Sussex Chapter 1690 of National Active and Retired Federal Employees at their October lunch meeting.

Sordi said seniors need to be aware of tax implications when they take their required minimum distribution from their retirement funds after reaching the age of 70 and a half. Her topic was tax planning and distributions from individual retirement accounts and qualified retirement plans.

She said seniors need to be aware that these mandatory annual distributions, whether they are from IRAs, 401ks, or the federal employee Thrift Saving Fund, are usually taxed as ordinary income, not at the lower capital gains rates. However, she said that in the event that no or insufficient RMD is withdrawn, an additional excise tax of 50 percent is assessed on the shortfall.

Sordi said annuitants can choose to withdraw an amount greater than the RMD from their accounts but need to be conscious of whether that withdrawal would affect their income tax bracket.

Comprehensive planning is important for all annuitant recipients, she said. "Planning is very personal, and always depends on individualized circumstances," she explained. Besides tax implications, she said factors that need to be considered in taking distributions include what are expected living and other expenses, what are the person's future income requirements, what remainder should be left to heirs, and when is the best time to start withdrawing.

Sordi said many federal employees and retirees had invested in the federal government's Thrift Savings Fund, and often face the decision in retirement of whether to transfer the funds to a private-sector IRA or keep their retirement money in the TSP. She said an advantage of the TSP is that it is low-cost, but a disadvantage is that it has restrictive withdrawal options. "In making these decisions, retirees need to determine their investment risk tolerance, and the amount of income they will need," she said.

The local Coastal Sussex Chapter 1690 is part of NARFE, a national organization that represents federal employees, retirees, and annuitants, promotes their general welfare, and provides advice and advocacy services with respect to their rights and benefits under federal and state retirement laws and regulations. For more information, email Ron or Carol Weber at rjw98@mchsi.com.