Even though income received from distributions from your traditional TSP is taxable, it is not considered earned income. Image: Olesia Bech/Shutterstock.com
By: John GrobeDoes income you receive from Thrift Savings Plan distributions count towards the earnings test that apply to the Retiree Annuity Supplement (RAS) and Social Security? No, it does not.
Why, might you ask? Even though income received from distributions from your traditional TSP is taxable, it is not considered earned income; and the test is an earnings test – not an income test. The tax code does have income tests hiding here and there, but that’s a topic for another article.
The Internal Revenue Service has a short (one sentence) definition of earned income. “Earned income includes all the taxable income and wages you get from working for someone else, yourself, or from a business or farm that you own.” Social Security is just as succinct, stating “The earnings test monthly and annual exempt amounts are the amounts of wages and self-employment income which you, as a Social Security beneficiary, may earn in any month or year without part or all of your monthly benefit being deducted because of excess earnings.”
So, in addition to income from your traditional TSP, what other types of income are not considered earnings for the purpose of the aforementioned earnings tests? So many different types of income that, if you printed out IRS Publication 525, Taxable and Non-Taxable Income, it would take 160 sheets of paper. Here are just a few of the common types of income that are not considered to be earned.
Your FERS annuity;
Social Security;
The Retiree Annuity Supplement;
Lump-sum annual leave payments;
Distributions from your traditional TSP;
Distributions from traditional IRAs;
State income tax refunds;
Interest;
Capital gains;
Unemployment compensation;
Powerball jackpots;
Dividends; and
Alimony.
Don’t worry, both OPM (for the Retiree Annuity Supplement) and Social Security (for your Social Security benefits) are aware of the difference between earned income and taxable income.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
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