Federal Employees News Digest

Federal Benefits Q&A

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Question: "If one accepts a voluntary separation incentive payment (VSIP) with monthly payments spread out across a year, from July 2014 to July 2015, do the 2015 VSIP payments meet the IRS IRA compensation criteria?"

Answer: VSIPs are considered "severance pay" (fully taxable with payroll taxes deducted). As such, your VSIP monthly payments are considered "earned income," and you will receive a W2 showing these payments for both 2014 and 2015. Assuming your adjusted gross income is below the maximum allowed for contributing to a Roth IRA in 2015, you can use your VSIP monthly payments as a basis for contributing to a Roth IRA for 2015.

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Contributors

Edward A. Zurndorfer Certified Financial Planner
Mike Causey Columnist
Tom Fox VP for Leadership and Innovation, Partnership for Public Service
Mathew B. Tully Legal Analyst

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