Federal Employees News Digest
Federal Benefits Q&A
- By FEND Staff
- Mar 03, 2014
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.