When you apply for an ASA distribution, you must choose how to receive the payment. You must select one payment option for the taxable portion and one payment for the non-taxable portion.
Members who elect to withdraw their ASAs at retirement will remain invested according to their pre-retirement investment allocations until their ASA is paid out at the time INPRS processes their retirement.
The tax status of your mandatory ASA contributions depends on whether or not taxes were withheld on them before the contributions were made to PERF. The employer-paid portion of the mandatory contributions are before-tax. Portions deducted from a member’s wages after taxes are deducted after-tax.
Members may elect a distribution at any time. Distribution requests may be made via the Web or by calling INPRS’ customer service center at (888) 526-1687. Requests received before 4 p.m. EST will be processed the same day. Checks will be issued and mailed within three to five business days.
Taxable Portion - Direct Rollover
You may elect to have all or part of the taxable portion of your ASA paid in the form of a direct rollover into an eligible 401(a), 403(b) or governmental 457(b) plan, or Traditional or Roth IRA, which has provisions allowing it to accept the rollover on your behalf.
Except in the case of a Roth IRA, this option defers any taxes you owe on your ASA balance.
If you choose to roll over only part of the taxable amount, the portion not rolled over is paid directly to you (less the mandatory 20 percent withholding for federal income tax).
Taxable Portion - Paid Directly to the Member
You may elect to have the total amount of the taxable portion of your ASA (less the mandatory 20 percent withholding for federal income tax) paid directly to you.
Non-Taxable Portion - Direct Rollover
You may elect to have all or part of the non-taxable portion of your ASA paid to up to two financial institutions in the form of a direct rollover into an eligible qualified plan, 403(b) plan, or Traditional or Roth IRA, which has provisions allowing it to accept the rollover on your behalf. If you choose to roll over only part of the non-taxable amount, the portion not rolled over is paid directly to you.
Non-Taxable Portion - Paid Directly to the Member
You may elect to have the total amount of the non-taxable portion of your ASA paid directly to you.
You will receive a 1099-R postmarked by January 31 of the year after you receive your distribution. By law, this is the latest date 1099-Rs can be mailed.
INPRS will withhold 20 percent from your distribution of the before-tax portion paid to you or to your surviving spouse. Adjustments may be made for payments made to survivors under special circumstances. State taxes will be withheld if required by the state.
If you choose to take a rollover distribution and do not complete the rollover by the 60th day following the day on which you receive the distribution, your distribution may be subject to taxes and/or penalties unless you qualify for a waiver. Please consult your tax professional for waiver qualifications.
|Tax Penalty – Early Withdrawal of ASA
You may be subject to an additional 10 percent federal tax penalty on your ASA if you have not reached the age of 591/2 at the time of your distribution.
If you have met age and years of participation requirements and have at least $15,000 in your ASA Only account balance, you may annuitize your ASA. Your rollover account may be used in the calculation of the minimum account balance. That is, you may take this money as a lifetime monthly annuity payment. You can also choose to receive a distribution of the ASA funds when you retire from PERF or defer distribution to a later date.
If you elect to withdraw your ASA at retirement, the balance will remain invested based on your pre-retirement investment allocations until INPRS processes your distribution.
If you decide to annuitize your ASA, the balance will be placed into a fixed value account. This happens no more than 30 days prior to processing your retirement application or your retirement date.
Any trailing contributions and amounts remaining in your account following any cancellation of the annuity will be moved to the PERF Money Market Fund. You may also reallocate your money to any of the available investment options under the plan.
The decision of how to receive the distribution of your ASA can have significant tax implications, and we urge you to consult with a tax advisor. Customer service representatives can explain options to you, but cannot offer tax advice. The information below is included to aid you and your advisors with federal tax provisions as they apply to PERF benefits.
Any contributions to your ASA made with after-tax dollars are considered “tax basis” because you have already paid taxes on those dollars. Mandatory contributions paid by your employer were not taxed at the time they were paid. Therefore, they do not create “tax basis.” Upon retirement, any after-tax contribution (your tax basis) is reported by PERF as non-taxable on the IRS Form 1099-R issued to retired members and the IRS. However, it is important to note that your tax basis is recoverable under very specific IRS rules.
You can elect to receive a lump sum distribution of your ASA Only. However, the entire tax basis is recovered in total since there are no recurring payments. If it is a partial lump sum and partial annuity, the basis will be split between the two, and the annuity recovery will be based on your age. If you annuitize your ASA Only, the basis allocated to the monthly annuity payment is divided up and recovered over a mandatory number of monthly payments, as determined by applicable IRS regulations. Therefore, a portion of each monthly benefit paid to you is non-taxable, for as long as basis remains.
If contributions are received after the member has requested a final distribution and the total account balance has been paid, the contribution is accepted and another distribution is paid using the previous distribution instructions. If a member was paid a disbursement in error, INPRS will work to restore the money if the member subsequently returns to work.
This division of the basis is required because the IRS has issued a letter ruling to PERF concluding that the ASA and monthly annuity payment payable to you do not constitute separate accounts. The consequence of this ruling is that, upon retirement, basis from contributions to the ASA must be partially allocated to your monthly annuity payment, as we have described above. One exception to this basis allocation rule is also relevant: a special provision of federal tax law permits you to immediately recover any tax basis that you may have had in your ASA on Dec. 31, 1986. The post-1986 basis, however, must be allocated to your monthly annuity payment.
For more information about "tax basis," go here.
|Leave Your ASA Invested: Upon separation from service, you may choose to leave your ASA invested with PERF. However, based on IRS regulations, you must begin distribution at age 70 1/2. Until you elect to receive your funds, they will remain invested according to your directions.
Withdraw Entire ASA: If you decide to withdraw your entire ASA, you must choose a direct rollover, complete withdrawal, or partial rollover to a qualified plan for the Taxable Portion of your ASA. Please consider the tax consequences you may face if you choose a complete withdrawal of the Taxable Portion of your account.
INPRS is required by law to withhold 20 percent for federal income taxes for any part of the eligible rollover distribution that is not directly rolled over. You will have to pay federal and state income taxes on this taxable portion.