PREPARING TO TERMINATE DROP

Transcription

1 PREPARING TO TERMINATE DROP If yu wrk until yur riginal Deferred Retirement Optin Prgram (DROP) terminatin date, the Divisin f Retirement will mail yu yur DROP Terminatin Packet apprximately 90 days prir t yur last day f emplyment. If yur emplyment ends befre yur riginal DROP terminatin date, it is imprtant that either yu r yur emplyer cntact the Divisin f Retirement as sn as pssible s yu can receive yur DROP Terminatin Packet in a timely manner. The Divisin f Retirement can be cntacted via phne, mail, fax, r t reprt yur new DROP terminatin date. Mailing Address: Divisin f Retirement P.O. Bx 9000 Tallahassee, FL Hw t Cntact the Divisin f Retirement Tll-free Phne: Lcal Phne: T.T.D. Phne: Fax: retirement@dms.myflrida.cm If yu have created yur FRS Online accunt and selected Electrnic as yur cmmunicatin preference, this packet will be upladed t the inbx f yur accunt instead f mailed t yu. Yu may access yur FRS Online accunt t lg in r create an accunt by clicking here. What T Expect In Yur DROP Terminatin Packet Cver letter explaining the prcess. Frm DP-TERM, DROP Terminatin Ntificatin t be cmpleted by yu and yur emplyer s authrized persnnel staff t certify yur emplyment terminatin. Frm DP-PAYT, Selected Payut Methd - t chse yur DROP distributin methd. Yu have three chices fr the distributin f yur DROP benefits: Lump sum less 20 percent tax withhlding. The DROP payment is mailed directly t yu. (Any prtin f yur payut that is taken as a lump sum prir t the year that yu reach age 55 may incur an additinal 10 percent tax penalty.) Direct rllver n tax withhlding. The DROP rllver payment is mailed directly t the custdian(s) f yur selected qualified plan. Cmbined partial lump sum and direct rllver- the lump sum prtin will be subject t the 20 percent tax withhlding. Infrmatin sheet frm the FRS Investment Plan. Direct Depsit infrmatin sheet. Frm DFS-A1-26R, Direct Depsit Authrizatin Frm this frm can be used t set up yur direct depsit r yu may als set up yur direct depsit by signing in nline. Special Tax Ntice (see Pages 3-5). Frm DP-JOINT (Optin 4 participants nly). 1

2 What Happens Next Upn receipt f the cmpleted Frm DP-TERM, yur name will be added t the Retired Payrll and yur first mnthly benefit will be dated as the last state business day f the mnth fllwing yur terminatin date. Yur DROP payut will be prcessed after receipt f the cmpleted Frm DP-PAYT and will be mailed the mnth fllwing terminatin. NOTE: If yu fail t return a cmpleted Frm DP-PAYT t the Divisin f Retirement within 60 days after yur terminatin date, a lump sum distributin, less 20 percent federal tax withhlding, will be mailed t yu at any time after the 60 day perid. Lump sum r partial lump sum checks are mailed directly t yu as they cannt be direct depsited. Rllver checks are mailed directly t the custdian(s) listed n yur Frm DP- PAYT. Yu will receive a letter ntifying yu when the payut has been prcessed and mailed. Retired Payrll Infrmatin: After yur name has been added t the Retired Payrll, yu will receive a Retiree Packet in the mail abut the same time that yu are t receive yur first mnthly retirement check. This packet is autmatically mailed t yu even if yu have previusly submitted ne r all f the frms listed belw. An infrmatin letter. What t Expect in Yur Retiree Packet A Frm W-4P Withhlding Certificate fr Pensin Payments. A Frm HIS-1 Health Insurance Subsidy applicatin (This prgram prvides additinal mney t yur mnthly retirement benefit t help cver sme f the cst f health insurance cverage). A Frm DFS-A1-26R, Direct Depsit Authrizatin Frm this frm can be used t set up yur direct depsit r yu may als set up yur direct depsit by signing in nline. (Fr State Emplyees already enrlled in Direct Depsit with the Department f Financial Services, n additinal authrizatin is needed fr the direct depsit f yur retirement benefit, unless yu cancelled r changed yur previus authrizatin). This frm can be dwnladed here and must be mailed t the address n the frm with a cpy f a valid driver s license r gvernment issued identificatin. 2

3 SPECIAL TAX NOTICE DEFERRED RETIREMENT OPTION PROGRAM (DROP) WITHDRAWAL AND PRE-TAXED REFUNDS WHAT S INSIDE General Rllver Infrmatin Eligible Plans and Distributins Payment Optins Tax Affects Rth IRA Special Rules Required Minimum Distributin Brn Prir t January 1936 Public Safety Officers Qualified Dmestic Relatins Orders Nnresident Alien Beneficiary Infrmatin Surviving Spuse Other Beneficiaries Cntact Infrmatin GENERAL ROLLOVER INFORMATION Rllver Eligible Plans and Distributins Yu are receiving this ntice because all r a prtin f yur DROP payment frm the Flrida Retirement System (FRS) Pensin Plan is eligible t be rlled ver int ne f the eligible Plans listed belw: IRA: Traditinal, Rth (nn-designated), Inherited Traditinal r Rth, and SEP Eligible Emplyer Plans: 457(b) gvernment Plans, pre-taxed 403(b) and qualified plans FRS cannt make a DROP payment until yu have terminated yur FRS emplyment and fr at least 30 days after yu receive this ntice. After yu receive this ntice, yu have 30 days t select yur payut ptin. Hwever, yu may waive this ntice perid by indicating yur payut methd n the required payut frm. Yur distributin will be prcessed accrdingly as sn as pssible after yur emplyment ends. Only the FRS DROP payment and pre-taxed refunds are eligible t be rlled ver, nt the FRS distributins listed belw: Mnthly FRS Plan benefit payments, including cntinued beneficiary payments Required minimum distributins after age 70½ (r after death). Payment Optins The required FRS DROP Selected Payut Methd Frm (DP-PAYT) has three payut ptins. Yu can select a direct rllver int an eligible plan, select a lump sum payment, r select a partial lump sum payment and t rll ver the remaining balance. A direct rllver electin means the FRS will send the DROP payment directly t yur selected eligible plan. Once the amunt is rlled ver, it becmes subject t the receiving plan s tax rules. A lump sum electin means the FRS will send the DROP payment directly t yu, minus 20 percent as required fr federal withhlding taxes. A partial lump sum electin means the FRS will send a prtin f yur ttal DROP balance as a lump sum t yu, minus the 20 percent federal withhlding taxes. FRS will send the remaining prtin as a direct rllver t an eligible plan, subject t that plan s tax rules. If, after yu receive a lump sum DROP payment, yu decide t rll sme r all f this payment int an eligible plan, yu have 60 days frm the payment date t cmplete the rllver. Yu shuld rll ver the entire pre-taxed (100 percent) grss amunt int a pre-taxed eligible plan, r yu will have t pay federal incme taxes n the difference. This means yu wuld have t pay the 20 percent yu did nt receive due t the required lump sum withhlding taxes. Hwever, this amunt may be recvered when yu file yur annual tax return. Fr example: Let s say yur grss (pre-tax) DROP balance is $10,000 and yu chse t have the FRS pay the entire amunt directly t yu as a lump sum payment. The FRS withhlds 20 percent, r $2,000, and yu ll receive a check fr the net (after-tax) amunt f $8,000. If yu then chse t rll yur DROP distributin int a pre-tax eligible plan (taxed upn taking a distributin), t avid any incme taxes, yu ll need t depsit the entire grss (pre-tax) amunt f $10,000. Any amunt less than the grss (riginal) DROP balance is cnsidered taxable incme in the year the payment was made. Als, yu may be subject t an additinal 10 percent tax fr early distributins (see belw). Depending n yur annual tax return calculatins, the IRS may refund yu the 20 percent tax withhldings. Any after-tax emplyee cntributins made t the FRS Plan are nt taxable and will be paid directly t yu, in accrdance with the IRS Simplified Methd calculatin, frmerly referred t as the Simplified General Rule (SGR). Nte: If yu miss the 60-day rllver deadline, the IRS may waive the deadline under certain extrardinary 3

4 circumstances, such as external events preventing yu frm cmpleting the rllver by the 60-day deadline. T apply fr a waiver, yu must file a private letter ruling request with the IRS, which includes a nnrefundable user fee. Fr mre infrmatin see IRS Publicatin 590, Individual Retirement Arrangements (IRAs). Tax Affects A direct rllver f yur FRS DROP payment is nrmally tax free, unless yu chse t rll it int an after tax eligible plan (Rth IRA see belw). Fr all direct rllver selectins, the FRS withhlds 0 percent fr taxes. Fr a lump sum payment, the FRS will subtract 20 percent fr federal withhlding taxes, even if yu chse t rll it ver int an eligible plan within 60 days f the payment. In additin, if yu are yunger than age 59½, yur DROP payut is cnsidered an early distributin. This means yu are still respnsible fr the additinal 10 percent early distributin penalty paid t the IRS, even thugh yur rllver electin may nt have withheld any taxes. This is the case unless ne f these exceptins applies: Payments made after yu separate frm service if yu will be at least age 55 when yu separate; Payments made after yu separate frm service if yu are a public safety emplyee and yu are at least age 50 when yu separate; Payments that start after yu separate frm service if paid at least nce a year in equal r clse t equal amunts ver yur life r life expectancy (r the lives r jint life expectancy f yu and yur beneficiary); Payments after yur death; Payments made directly t the gvernment t satisfy a federal tax levy; Payments made under a Qualified Dmestic Relatins Order (QDRO). Rllver int a Rth IRA Yu can rll yur FRS DROP payment ver t an aftertax Rth IRA (excluding designated Rth accunts) and chse 0 percent (the default), 10 percent r 20 percent federal withhlding taxes n the DP-PAYT Frm. Early distributin penalties will nt apply unless yu take the amunt rlled ver ut f the Rth IRA within five years, starting frm January 1 f the year yu made the rllver. Starting in 2011, the IRS allws yu t spread ut the federal taxes yu we fr payments rlled int a ROTH IRA during 2010 ver a tw-year perid, If yu rll ver the payment t a Rth IRA, later payments frm the Rth IRA that are qualified distributins will nt be taxed (including earnings after the rllver). A qualified distributin frm a Rth IRA is a payment made after age 59½ (r after yur death r disability, r as a qualified first-time hmebuyer distributin f up t $10,000) and after yu have had a Rth IRA fr at least five years. This five-year rule begins January 1 f the year fr yu first cntribute t a Rth IRA. Yu d nt have t take required minimum distributins frm a Rth IRA during yur lifetime. Fr mre infrmatin see IRS Publicatin 590, Individual Retirement Arrangements (IRAs). SPECIAL RULES Required Minimum Distributin (RMD) If yu turned 70½ years f age befre terminating DROP emplyment, the FRS will pay yu the RMD mandated by the IRS. Yur RMD amunt is yur pretaxed FRS DROP accumulated balance minus the required 10 percent federal incme withhlding taxes. Minimum distributins d nt apply t members while participating in the FRS DROP. Brn n r befre January 1, 1936 If yu were brn n r befre January 1, 1936, and receive a lump sum distributin that yu d nt rll ver, special rules fr calculating the amunt f the tax n the payment might apply t yu. Fr mre infrmatin see IRS Publicatin 575, Pensin and Annuity Incme. Payments under a Qualified Dmestic Relatins Order (QDRO) If yu are the spuse r frmer spuse f the participant wh receives a DROP payment frm the FRS under a QDRO, yu generally have the same ptins the participant wuld have. Fr example, yu may rll ver the payment t yur wn IRA r an eligible emplyer plan that will accept it. Payments under the QDRO are nt subject t the 10 percent additinal incme tax n early distributins. Nnresident Alien If yu are a nnresident alien and d nt select a direct rllver f yur DROP payments t a U.S. IRA r U.S. emplyer plan, then instead f withhlding the standard 20 percent, the FRS Plan is required t withhld 30 percent f the payment fr federal incme taxes. Fr mre infrmatin see IRS Publicatin 519, U.S. Tax Guide fr Aliens, and IRS Publicatin 515, Withhlding f Tax n Nnresident Aliens and Freign Entities. BENEFICIARY INFORMATION Payments t Surviving Spuse If yur spuse is a deceased participant, and yu as survivr receive the DROP payment frm the FRS, yu have the same rllver ptins that were available t 4

5 yur spuse (described previusly in this dcument). In additin, if yu chse t rll ver t an IRA, yu may treat the IRA as yur wn r as an inherited IRA. An IRA yu treat as yur wn is treated like any ther IRA. Payments made t yu befre yu are age 59½ will be subject t the 10 percent additinal incme tax n early distributins (unless an exceptin applies) and required minimum distributins frm yur IRA d nt have t start until after yu are age 70½. If yu treat the IRA as an inherited IRA, payments frm the IRA will nt be subject t the 10 percent additinal incme tax n early distributins, but will be subject t the required minimum distributin rules based n the member s date f birth. Payments t Other Beneficiaries If yu are entitled t a DROP payment frm the FRS because f the participant s death and yu are a designated beneficiary ther than a surviving spuse, yu may rll ver the benefit directly t an inherited IRA, r receive a lump sum payment. Rllvers t an inherited IRA are subject t the required minimum distributin rules. If yu chse nt t rll ver the DROP distributin, the amunt will be taxed in the same manner described elsewhere in this ntice. Hwever, the 10 percent additinal incme tax n early distributins and the special rules fr public safety fficers d nt apply. The special rule described under the sectin If yu were brn n r befre January 1, 1936 applies nly if the participant was brn n r befre January 1, FOR MORE INFORMATION Please cntact a prfessinal tax advisr befre electing a payment frm the FRS. Yu can find mre infrmatin in the publicatins listed belw that are available at yur lcal IRS ffice, n the Web at r by calling TAX-FORM ( ). IRS Publicatin 575, Pensin and Annuity Incme IRS Publicatin 590, Individual Retirement Arrangements (IRAs) IRS Publicatin 571, Tax-Sheltered Annuity Plans (403(b) Plans) Please visit ur Web site fr additinal infrmatin at: Yu can reach the Divisin directly tll free at (844) , r lcally at (850) Yu can als write t the Divisin at: Flrida Retirement System Pensin Plan Divisin f Retirement P.O. Bx 9000 Tallahassee, FL Special Tax Ntice