the Early Retirement Incentive Program, Category 3 retirees will
receive an incentive payment of $500 per month for 24 months in
addition to their regular monthly retirement allowance. The $500
per month incentive is paid separately from the regular retirement
allowance and is also subject to different treatment under federal
$500 per month incentive payment is considered an eligible rollover
distribution. As such, you can elect to have this benefit:
Directly rolled over to a traditional individual retirement
account (IRA) or another eligible employer plan; or
Have the benefit paid to you after federal tax is withheld.
publication outlines some important points you should consider
when choosing between rolling over or receiving payment of your
$500 monthly incentive.
IS A DIRECT ROLLOVER?
can choose a direct rollover of your $500 retirement incentive
payment. In a direct rollover, your distribution is paid directly
from the retirement system to an IRA or another qualified employer
plan that accepts rollovers. If you choose a direct rollover,
you are not taxed on a payment until you later take it out of
the IRA or the other eligible employer plan. You are free to change
your election for any later payment in the series by filing a
new Rollover Election Form which is available from the
Division of Pensions and Benefits.
Rollover to a Traditional IRA
can open a Traditional IRA to receive the direct rollover. If
you choose to have payment made directly to an IRA, contact the
IRA sponsor (usually a financial institution) to find out how
to have your payment made in a direct rollover at that institution.
If you are unsure how to invest your money, you can temporarily
establish an IRA to receive payment. In choosing an IRA, you may
wish to consider whether the IRA you choose will allow you to
move all or a part of your payment to another IRA at a later date
without penalties or limitation. See IRS Publication 590, Individual
Retirement Arrangements, for more information on Traditional
IRAs including limits on how often you can roll over between IRA
Rollover to Another Employer's Plan
you are employed by a new employer that has an eligible employer
plan and you want a direct rollover to that plan, ask the administrator
of that plan whether it will accept your rollover. If your new
employer's plan does not accept rollovers, you can choose a direct
rollover to an IRA.
qualified employer plan is not legally required to accept a rollover.
Before you decide to roll over your payment to another employer
plan, you should find out whether the plan accepts rollovers and,
if so, the types of distributions it accepts as rollovers. If
an employer plan accepts your rollover, the plan may restrict
subsequent distributions of the rollover amount or may require
your spouse's consent for subsequent distribution. A subsequent
distribution from the plan that accepts your rollover may also
be subject to a different tax treatment than distributions from
this plan. Check with the administrator of the plan that is to
receive your rollover prior to making the rollover.
HAPPENS IF I HAVE THE PAYMENT PAID TO ME?
you have the payment made to you, the entire $500 payment is subject
to 20 percent ($100) income tax withholding. This is sent to the
IRS. The distribution is taxed in the year you receive it unless,
within 60 days, you roll it over to an IRA or another eligible
employer plan that accepts rollovers.
IF I HAVE THE TAXABLE DISTRIBUTION MADE TO ME AND CHANGE MY MIND
AFTER I RECEIVE IT?
have a 60 day rollover option. If your monthly payment is
paid to you, you can still decide to roll it over to an IRA or
another eligible employer plan that accepts rollovers. If you
decide to roll over, you must make the rollover within 60 days
of the date you receive the payment. The rollover will not be
taxed until you take it out of the IRA or the employer plan.
can roll over up to 100 percent of the eligible rollover distribution,
including an amount equal to the 20 percent ($100) that was withheld.
If you choose to roll over 100 percent, you must find other money
within the 60-day period to contribute to the IRA or the eligible
employer plan to replace the 20 percent that was withheld. If
you roll over the $400 you received, however, you will be taxed
on the 20 percent ($100) that was withheld.
example: Your eligible rollover distribution is $500 and
you choose to have it paid to you. You will receive $400 and $100
will be sent to the IRS as income tax withholding. Within 60 days
after receiving the $400, you decide to roll over the entire $500
to an IRA or eligible employer plan. To do this, you roll over
the $400 you received from the retirement system and you add $100
from other sources (your savings, a loan, etc.). In this case,
the entire $500 is not taxed until you take it out of the IRA
or employer plan. When you file your income tax return, you report
the $100 of tax withheld and may be eligible for a refund.
on the other hand, you roll over only $400, the $100 you did not
roll over is taxed in the year it was withheld. When you file
your income tax return you may get a refund of part of the $100
withheld, however, any refund is likely to be larger if you roll
over the entire $500.
term IRA used in this fact sheet includes traditional individual
retirement accounts and individual retirement annuities.
It does not include a Roth IRA, SIMPLE IRA,
or a Coverdell Education Savings account (formerly called
an Education IRA).
Division of Pensions and Benefits cannot give
tax advice. Additional information is available from a professional
tax advisor and IRS Publication 575, Pension and Annuity
Income, and IRS Publication 590, Individual Retirement Arrangements.
These publications are available from your local IRS office,
by calling 1-800-TAX-FORMS, or over the Internet at www.irs.gov