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Withdrawal at Retirement | Tax Information | Table of Contents
Members of the System may be eligible to receive a refund of some or all of their contributions and accumulated interest. Eligibility is dependent on the individual’s circumstances and is more fully explained in the balance of this section. SINCE A PORTION OF MOST REFUNDS WILL RESULT IN SOME TAX LIABILITY, MEMBERS SHOULD BE ENCOURAGED TO CONSULT WITH THEIR TAX ADVISOR TO EVALUATE THE TAX IMPACT BEFORE APPLYING FOR A REFUND.
Prior to the enactment of the Non-Contributory Retirement Plan in 1968 and the Career Plan in 1970, many Tier 1 members elected to deposit an additional percentage of their salaries to be eligible for retirement at age 55. These additional payments were known as Special Service contributions and will be refunded along with accumulated interest at the member's request. Members may request an estimate of their available refund from the System and then complete form Withdrawal of Special Service Contributions (RET-60), if they wish to withdraw these funds. Questions should be directed to our Special Service Refund Unit at (800) 348-7298, Ext. 6020 (447-2900 if calling from the Albany area).
Generally, members who are no longer under contract (full-time or part-time) or on a leave of absence (with or without pay) with an employer covered by this System may withdraw from membership and receive a refund of any contributions plus interest on deposit in this System if they are:
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Credited with fewer than 5 years of service credit;
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A Tier 1 or 2 member credited with more than 5 years and willing to waive their right to any future benefit from this System; or,
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A Tier 3 or 4 member credited with between 5 and 10 years of service and willing to waive their right to any future benefits.
Tier 3 and 4 members with more than 10 years are not allowed to withdraw their membership.
A member who withdraws and subsequently rejoins the System will do so under the laws and tier in effect at that time but may elect to reinstate to a former membership date (see Sec. 1: Membership). Employers may be directed by NYSTRS to refund employee contributions not yet received by the System as a result of a withdrawal from membership.Withdrawal from membership is accomplished by filing an Application for Withdrawal from Membership (REF-7A) form. Questions on this subject should be directed to our Refund Unit at (800) 348-7298, Ext. 6090 (447-2900 if calling from the Albany area).
Tier 1 and 2 members are able to receive a refund of their total Annuity Savings Fund (ASF) once they have filed for retirement. As with all voluntary refunds, members are urged to consider the tax implications before a refund is requested. This type of refund may be requested no earlier than the date the member files her/his retirement application and no later than the day before the effective date of retirement. A member may file for this type of refund by checking the box on the Application for Retirement or by completing a Distribution Election (REF-30) form. Questions on total withdrawals should be directed to (800) 348-7298, Ext. 6090 (447-2900 if calling from the Albany area).
The Retirement System may occasionally direct employers to refund the 3% contributions not yet collected by the System to Tier 3 and 4 members who are no longer required to contribute. This request will arise when:
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A Tier 3 or 4 member withdraws from System membership;
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One of these members transfers an earlier tier of membership from another retirement system to our System; or,
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The employer makes an erroneous deduction.
Refunds of $200 or more resulting from a Tier 3 or 4 member withdrawing membership from the System are subject to mandatory 20% withholding. If the member is under age 59½, s/he should also be made aware that the refund is subject to a 10% penalty for early withdrawal. The penalty may not be withheld from the refund. This type of refund is also now eligible to be rolled over by the member to an IRA or qualified plan. Any questions the member may have regarding rollover should be directed to the System. Tier 3 and 4 corrective refunds resulting from a member transferring an earlier tier of membership from another System, or the employer having taken erroneous deductions, are subject to 10% withholding. These types of refunds are not subject to the 10% penalty and are not eligible for rollover. Since tax regulations differ, the System will advise you of the reason for the refund and indicate the type of withholding required. All Tier 3 and 4 refunds are reportable as taxable income for federal income tax purposes in the year the refund is made. The refund is, however, exempt from New York State income tax and Social Security tax.
Once the refund is made, the member should be told the payment is taxable and advised of the amount withheld, if any. In addition, IRS form 1099-R must be provided to the member indicating the gross amount of the refund in box #1 and box #2a, and the withholding, if any, in box #4. If the refund is due to a withdrawal of membership rather than a change in tier level or erroneous deduction, and the member is under age 59½ when the distribution is made, box #7 must also be completed using distribution code 1. Use of this code indicates the refund was a premature distribution and subject to the 10% penalty. If the member is 59½ or older when this type of distribution is made, or if the refund is due to a change in tier level or erroneous deduction, box #7 must be completed using distribution code 7. In addition, if the refund is due to a withdrawal of membership, the total distribution box in box #2a should be checked. Copy A is to be sent to the Internal Revenue Service. Copies B and C are to be sent to the member and Copy D is to be retained for your records. Since the refund is exempt from New York State tax, the state copies of the 1099-R should not be issued.
Questions regarding the tax information contained in this section should be directed to our Finance Office at (800) 348-7298, Ext. 6120 (447-2900 if calling from the Albany area).
The following is a sample of an election form the System will furnish for members to complete prior to receiving a corrective refund.
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REF-31 (5/90) WITHHOLDING ELECTION FOR REFUND OF TIER 3 OR TIER 4 CONTRIBUTIONS
(Name) (Social Security Number) Please refund any required contributions not previously forwarded to the Retirement System. ***IMPORTANT TAX INFORMATION*** Under existing law, this refund is subject to Federal Income Tax withholding unless you elect not to have withholding. Withholding applies to the total refund. Although you may elect not to have Federal Income Tax withheld, you are liable for payment of Federal Income Tax on the refund. You are also subject to tax penalties under the estimated tax payment rules if your payments of estimated tax and withholding are not adequate. If your membership in the Teachers' Retirement System has terminated, there is an additional 10% penalty on the refund if you are less than age 59½ when the distribution is made. There is no provision for having a penalty withheld from your refund. I do not want Federal Income Tax withheld from my refund check. Withhold Federal Income Tax from my refund check in accordance with Internal Revenue Service regulations.
(Signature) (Date) |
Updated 8/07.