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  1. #1

    Exclamation Taxation of TSP Distribution in a Divorce Settlement

    I did not get the house...he did. I am getting a settlement out of his TSP account. I want to use this money to put down on a house. Will I be taxed on this money if I do that, and how does it work? I have read some places that IRA or other type account settlements can have a tax amount of up to 35%. Lets say for argument's sake my settlement is $50,000. Does that mean I will have to pay a lump sum tax of $17,500 when I get that money? Is that still the case if I am going to use that $50,000 as a down payment?

  2. #2
    Join Date
    Sep 2005
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    Behind a Desk
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    75,472

    Default Re: Taxation of TSP Distribution in a Divorce Settlement

    So, basically, your spouse has a Thrift Savings Plan (TSP) account, you have agreed to take payment from that account as part of your divorce settlement, and... what else? Are you supposed to roll the payment over into your own retirement plan so that you and your spouse can avoid paying taxes on the withdrawal?

  3. #3
    Join Date
    Sep 2010
    Posts
    10,138

    Default Re: Taxation of TSP Distribution in a Divorce Settlement

    I'd recommend being careful. WHile certain QDRO-based disbursements are exempt from the penalty and even taxation, you have to do it right to get this benefit.

  4. #4

    Default Re: Taxation of TSP Distribution in a Divorce Settlement

    No, I am getting 1/2 payout, but that is what I am asking. IF I take a cash payout and do not roll it into a new IRA or such for myself, but instead invest the money into real estate, will I still be taxed? Will I get a break of somekind on the property I will own? Will I be taxed twice on this if I eventually sell the property? I don't want to roll this into an IRA and then borrow against it for the down payment of a house because that defeats the purpose of putting money down to lower the overall payment...I would have to make payments back to the IRA. Does that make any sense?

  5. #5
    Join Date
    Sep 2010
    Posts
    10,138

    Default Re: Taxation of TSP Distribution in a Divorce Settlement

    There's not enough information here to tell and I'm tired of playing twenty questions to elicit the proper response. Ask your divorce attorney.

  6. #6

    Default Re: Taxation of TSP Distribution in a Divorce Settlement

    WOW, you never asked any questions "flyingron". I am not an attorney, I don't know EXACTLY what you NEED to know to help me. Maybe if you asked me specific questions it would help me to provide "the proper response". I have asked my divorce attorney, do you think I would be asking here if I already KNEW the answer? I have given you a lot of information as far as I am concerned. I am getting a settlement out of his TSP, I am getting "1/2" of it. I want to get a cash payout. I want to take that money and use it to buy a house. I am sure there will be a penaltly for getting the money paid out to me versus rolling it into an IRA. I know that. What I am TRYING to find out is if I do get the cash payout, will it be taxed? Is it taxed as income, just tacked onto my yearly income at the end of the year? Is it taxed separately? If it is, how much am I looking at in tax percentage, 10%? 35%? If I use that money to buy real estate, does that have any bearing on how it is taxed?

    How exactly do I have to "do it right" to NOT be penalized or taxed on a QDRO settlement?? How can I find out about "doing it right" to "get this benfit"? I am trying to research all of this so I know what to expect and so I came here where I thought there were supposed to be professionals that had some knowledge about this type of thing.

  7. #7
    Join Date
    Sep 2011
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    OH10
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    15,016

    Default Re: Taxation of TSP Distribution in a Divorce Settlement

    When he withdraws the money, he is subject to a withdraw penalty, barring a QDRO exception. At that point, the money becomes "his cash". If he buys out your interest in the home with "his cash", to you, it is only cash. You can only invest it in an IRA to the limitations of your yearly contribution limit. You buying a house, does not negate his taking "his cash" because when you buy the house with the settlement, it is "your cash".
    Teach a man to fish, you feed a village. Give a man a fish, the ever growing village demands free fish. We will now spend trillions on social services and SSI for people who don't know how to fish.

  8. #8
    Join Date
    Jul 2007
    Location
    Florida
    Posts
    1,945

    Default Re: Taxation of TSP Distribution in a Divorce Settlement

    What you spend the money on is irrelevant. If you take money from a tax protected account that has never been taxed then it is now going to be taxed. What flyingron was talking about was whether you can avoid a 10% penalty on the money, options for rolling it over without incurring taxes, and so forth. This is a complicated issue and you need professional advice. This is not something you want to get an annonymous answer on a message board for and then act on that. Too much money at stake for that. Nobody here is going to spend enough time asking questions to give you free advice which is worth what you'd pay for it.

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