Options Available Upon Termination or
(Click on a topic heading to view its summary)
- Leaving Your Account Balance in the Plan
- Lump Sum Distributions
- Age 55 or Older Provision
- Regular Monthly or Quarterly Payments
- Annuity Purchases
- A Note About Outstanding Loans (If applicable to your agency)
- Timing of Distributions
Leaving Your Account Balance in the Plan
Lump Sum Distributions
- You may take out your entire balance in a single lump sum distribution.
- The IRS requires a flat 20% Federal income tax withholding on the
taxable portion of a lump sum distribution.
If applicable, any mandatory state tax will also be withheld. If you choose
to rollover your distribution to a rollover IRA or another Eligible Retirement
Plan, taxation will be deferred until you take a distribution from wherever
you rolled your funds. For information about rollovers, see the next section.
- The Internal Revenue Service also imposes a 10% penalty tax
on distributions from retirement plans prior to the time you reach age 59½.
However, there are exceptions to the penalty. Some of these exceptions are:
a distribution made as a result of your disability or death;
a Qualified Domestic Relations Order (QDRO, which applies to divorce or
other circumstances); or, if you are age 55 or older in the year in which
you terminate. If you terminate employment prior to the year in which you
attain age 55, you will not be exempt from the 10% penalty until you
reach age 59½. Federal Form 5329 should be furnished to you by your
tax preparer when filing your Federal Tax Return 1040.
- You are permitted to request that a total or partial rollover be directed
to a rollover IRA (Individual Retirement Account) or to an Eligible Retirement
Plan that will accept the rollover. Eligible Retirement Plans include:
Qualified Plans, such as 401(a) or 401(k); 403(b) Tax-Sheltered Annuity Plans;
and 457(b) Plans.
- Most participants elect to rollover only the taxable portion of a
distribution. Since there is no tax liability, except for earnings on the taxable portion, or penalty associated with
receiving a non-taxable distribution, they elect to have the non-taxable
portion paid directly to them.
- However, now that certain rollover IRA's and certain Eligible Retirement
Plans do accept non-taxable rollovers, that option is available to you. Be
sure to check with your rollover company to see who is responsible for
keeping records of your non-taxable funds for future tax purposes.
Age 55 or Older Provision
- After you terminate employment, you may want to leave your money in
the Plan until you reach age 55 in order to take advantage of this special
provision. When you are age 55 or older, you may elect to receive your
distribution in partial payments, in whatever amount you choose, and you
may elect to receive them as often as monthly. You are not required to
take a payment every month, nor do the payments always have to be in
the same amount. Since the amount and frequency of your payments can
vary, the Plan Administrator will provide you with special forms for
making your selection(s). Once you start receiving payments, you are
still entitled to take out your entire balance at any time, or elect
another optional form of payment under the Plan.
- The mandatory 20% tax withholding rules apply to these distributions.
If you terminate employment prior to the year you attain age 55, any
payments you receive before age 59½ may be subject to the 10% tax penalty.
Regular Monthly or Quarterly Payments
- Regardless of your age, you may elect to receive one of the following
two options. Once you begin receiving
payments under either option (1) or (2) below, you may not switch to
another option unless you are age 55 or older and elect the "Age 55 or
Older Provision" above. Making a change will cancel your current tax
withholding election and require the Plan Administrator to withhold 20%
federal income tax from each future payment. Once you have made this
change, you may not revert back to your initial election.
- If your total vested account balance is at least $50,000,
you may elect to receive either monthly or quarterly payments
that will continue for exactly 10 years. If you select
monthly payments, your
first payment will be 1/120th of your balance, the next will
be 1/119th of your balance, then 1/118th, etc., until all
120 payments have been made. If you select
quarterly payments, your
first payment will be 1/40th of your balance, the next 1/39th,
then 1/38th, etc., until all 40 payments have been made.
- You may elect to receive regular monthly payments of at
least $500 (or regular quarterly payments of at least $1,500)
until your account balance is exhausted. Initially, you may
specify the dollar amount of each payment (subject to the
above minimums),but the dollar amount cannot be
changed once payments begin unless you are 55 or older..
- Under IRS regulations, equal (or almost equal) payments that
continue for a period of at least 10 years are not subject to
mandatory 20% tax withholding. Therefore, if you elect option (1)
above (or if you elect option (2) and your payments are expected
to last at least 10 years), your tax withholding rate will only
be 10%, unless you wish to have no taxes withheld. To elect out
of tax withholding, ask the Plan Administrator for the election
form and related information. Please be advised that the 10% penalty
tax (described on page 1) may still apply to your particular
situation under these options.
- Depending on which monthly annuity option you choose,
purchasing an annuity provides you with a
lifetime of monthly income
payments and the option of providing an income (or lump sum)
to your beneficiary after your death.
- If you elect to purchase a monthly annuity benefit, bid quotes will
be taken from several insurance companies (currently John Hancock,
Metropolitan Life, and Principal Mutual Life Insurance Companies) so that
you may choose the best offer. You may purchase your benefit from any
one of these companies. Neither the mandatory 20% tax withholding nor
the 10% penalty tax applies to annuities. You will arrange with the
insurance company whether to have taxes withheld from your monthly payments.
- Upon your selection, a check will be disbursed from your retirement
account and mailed directly to the chosen insurance company. You will
receive your monthly check directly from the insurance company and, at
the end of the year, you will receive from the insurance company a Form
1099R showing the total benefit paid you, any Federal income tax withheld,
and any non-taxable portion, if applicable.
- All annuities will provide a lifetime monthly benefit
for you, the purchaser of the annuity. There are several types of
annuities from which to choose.
Monthly annuity options are:
The Life Only Annuity
provides lifetime annuity payments for the participant who purchases
the annuity, with no benefit payable to a beneficiary after the
The 5, 10, 15 &
20 Year Certain and Continuous Annuities
provide the participant who purchases the annuity with a lifetime benefit.
If the payments made have not already exceeded the guaranteed period, the
beneficiary will be entitled to receive the same monthly benefit to complete
the guarantee period. For example, if a participant selects the 20 Year
Certain and Continuous Annuity and dies after 12 years, the beneficiary
would receive the same monthly payments for the next 8 years to complete
the guarantee period. If the participant chooses this same 20 Year
Certain and Continuous Annuity and lives for 20 or more years, there
would be no benefit payable to the designated beneficiary.
A Joint Survivor Annuity
will provide a lifetime benefit for the participant who purchases the annuity.
If the purchaser should die, a percentage of that lifetime benefit
will continue to the designated Joint Annuitant. There is no benefit
payable after the death of both parties. The participant selects the
percentage: For example, if a participant selects a "Joint and 50% to
Survivor" annuity that provides $500 a month to the participant for
life, after the death of the participant, the Joint Annuitant, if
living, would receive 50% of the $500, or $250 a month, for his or her
lifetime. Had the participant selected a "Joint and 100% to the Survivor"
annuity, the Joint Annuitant would receive the full 100%, or $500
per month for life.
A Cash Refund Annuity
provides lifetime annuity payments for the participant. If the participant
should die before having received total annuity payments equal to the
amount of money used to purchase the annuity, the excess will be paid
to the designated beneficiary in a lump sum.
A Variable Annuity
is invested primarily in a portfolio of equity securities and, therefore,
provides lifetime annuity payments to the participant which fluctuate
with the value of those securities. The participant may select from
several types of variable annuities with "certain and continuous" or
"joint and survivor" features for the designated beneficiary.
A Note About Outstanding Loans (If applicable
to your authority)
- If you terminate employment and have an outstanding loan balance,
the balance of that loan becomes immediately due and payable.
Unless the loan is repaid in full prior to termination, the remaining
loan amount is treated as a distribution from the Plan and is subject to taxation.
This will occur whether or not you request a distribution of your vested
retirement account balance. The Form 1099R will be forwarded to you and the
taxable information will be reported to the Internal Revenue Service.
Also, you should be aware that unpaid loans will not be eligible for rollover.
However, if you do not withdraw your account balance from the Retirement Plan,
you may be able to make arrangements to continue making loan payments.
Please contact the Plan Administrator (Tel: 1-888-801-3534) for special
instructions or a loan payoff quote. For tax implications, you should consult
your tax advisor.
Timing of Distributions
- Distributions are processed after final plan contributions and loan
payments are received by the Plan Administrator from your agency. Since final contributions
and loan payments are usually received from your agency during the month that follows
your termination month, you will typically receive your distribution at the end
of the month following the month in which your termination date occurs.
Once final contributions are received, distributions are processed every business day.
Checks are mailed within two business days from ADP Retirement Services in Salem, New Hampshire.
Please allow adequate time (an additional 3 to 5 business days) for mail delivery.
- To initiate a distribution or for additional information about
these opportunities/options, please consult with the appropriate
person at your agency. To receive any type of distribution from
the Plan you must sign and complete Form #0150. The form is available
on this site as a
(click here to open, download or print),
or from your agency in traditional paper format.