Q. I am 60 years old and had emergency major open heart surgery May 16, 2011. The Mayo Clinic in Jacksonville, Fla., installed a left ventricular assist device. I had to stay away from my home in Georgia and stay close to the Mayo Clinic following this procedure for several months, which put a strain on my savings. I was forced to have to retire with approximately 37 years of government service. My retirement date was Sept. 2, 2011. I put in for an alternate retirement annuity because of my qualifying medical condition to help me pay my medical bills and pay my house off, etc. I handled all the retirement arrangements from Florida at the Mayo Clinic on a laptop. I am still on an interim retirement from the Office of Personnel Management and on the heart transplant list. If I get called for a transplant, I will need the lump sum for my expenses and medications.
I am confused about the tax treatment on my lump sum. I have approximately $118,000 in lump sum. This money has already been taxed by the government during the last 37 years every two weeks. I contacted OPM recently and was told about holding out money for taxes. In addition, OPM said it cannot issue a check over $100,000. I would have to get two checks minus these taxes. Is this double-taxing me? Can you calculate the present value of my annuity contract based on 37 years at 60 years old or give me a ballpark figure? My wife was 55 years old when I retired, and I put in for full survivor benefits.
I still do not understand the concept of the present value of my annuity contract. I would say it is $118,000 and it should cancel out and I should get my 20 percent back as a refund.
A. Although you have applied for the alternative form of annuity, it would only be granted if the medical evidence established that you have a life expectancy of less than two years. If OPM finds that you are eligible, the methodology they’ll use to make your lump-sum payment and calculate your remaining annuity and the survivor annuity available to your wife is at www.opm.gov/retire/handbook/C053.pdf. However, since that chapter was published, the present value factor for a CSRS retiree who is age 60 has changed to 204.6. Note: Although there is information about the tax treatment of these benefits in the chapter’s appendices, you’d still need to check with the Internal Revenue Service to be sure that it is current.