Notice of Final Deposit_TRS Form 6

Form 6PG1
Rev. 02-15
SPECIAL TAX NOTICE REGARDING YOUR ROLLOVER OPTIONS
UNDER THE TEACHER RETIREMENT SYSTEM OF TEXAS
You are receiving this notice because all or a portion of a payment you are receiving from the
Teacher Retirement System of Texas ("TRS"), a governmental 401(a) pension plan, is eligible
to be rolled over to an IRA or an employer plan. This notice is intended to help you decide
whether to do such a rollover. IF YOU RECEIVE OR ACCESS THIS NOTICE ELECTRONICALLY,
YOU MAY REQUEST A PAPER COPY OF THIS NOTICE FROM TRS AT NO CHARGE TO YOU.
Rules that apply to most payments from a retirement plan are described in the "General Information
About Rollovers" section. Special rules that only apply in certain circumstances are described in the
"Special Rules and Options" section.
GENERAL INFORMATION ABOUT ROLLOVERS
How can a rollover affect my taxes?
You will be taxed on a payment from TRS if you do not roll it over. If you are under age 591/2 and
do not do a rollover, you will also have to pay a 10% additional income tax on early distributions
(unless an exception applies, as determined under federal tax laws by the IRS).
If you do a rollover to a traditional IRA or an eligible employer plan, you will not have to pay tax
until you receive payments later from the IRA or plan, and the 10% additional income tax will not
apply if those payments are made after you are age 591/2 (or if an exception applies).
If you do a rollover to a Roth IRA, you will be taxed on the amount rolled over (reduced by any
after-tax amount). However, if you are under age 591/2 at the time of the rollover, the 10%
additional income tax will not apply. See the section below titled "If you roll over your payment
to a Roth IRA" for more details.
Where may I roll over the payment?
You may roll over the payment to either an IRA (an individual retirement account or individual
retirement annuity) or an employer plan (a tax-qualified section 401(a) plan, section 403(b) plan,
or governmental section 457(b) deferred compensation plan) that will accept the rollover. The
rules of the IRA or employer plan that holds the rollover will determine your investment options,
fees, and rights to payment of the rolled over amount in the future. Further, the amount rolled
over will become subject to the tax rules that apply to the IRA or employer plan.
How do I do a rollover?
There are two ways to do a rollover. You can do either a direct rollover or a 60-day rollover.
If you do a direct rollover, TRS will make the check payable directly to your IRA or an employer
plan. TRS then will mail the check to you for you to deposit it with your IRA or employer plan.
You should contact the IRA sponsor or the administrator of the employer plan for information
on how to do a direct rollover.
If you do not do a direct rollover, TRS is required to withhold 20% of the payment for federal
income taxes. If you do not do a direct rollover, you may still do a rollover by making a deposit
into an IRA or eligible employer plan that will accept it. You will have 60 days after you receive
the payment to make the deposit. This means that, in order to roll over the entire payment in a
60-day rollover, you must use other funds to make up for the 20% withheld. If you do not roll
over the entire amount of the payment, the portion not rolled over will be taxed and will be
subject to 10% additional income tax on early distributions if you are under age 591/2 (unless
an exception applies, as determined under federal tax laws by the IRS).
Form 6PG2
How much may I roll over?
Rev. 02-15
If you wish to do a rollover, you may roll over all or part of the amount eligible for rollover.
Any payment from TRS is eligible for rollover, except:
’ Certain payments spread over a period of at least 10 years or over your life or life
expectancy (or the lives or joint life expectancy of you and your beneficiary) (This
means that your lifetime monthly benefits are not eligible for rollover).
’ Required minimum distributions after age 701/2 (or after death)
’ Corrective distributions of contributions that exceed tax law limitations
TRS can tell you what portion of a payment is eligible for rollover.
If any portion of your payment is taxable but cannot be rolled over, the mandatory withholding
rules described above do not apply. In this case, you may elect not to have withholding apply to
that portion. If you do nothing, an amount will be taken out of this portion of your payment for
federal income tax withholding. To elect out of withholding, ask TRS for the election form and
related information.
If I don't do a rollover, will I have to pay the 10% additional income tax on early
distributions?
If you are under age 591/2, you will have to pay the 10% additional income tax on early distributions
for any payment from TRS (including amounts withheld for income tax) that you do not roll over,
unless one of the exceptions listed below applies. This tax is in addition to the regular income tax
on the payment not rolled over.
The 10% additional income tax does not apply to the following payments from TRS:
’ Payments made after you separate from service if you will be at least age 55 in the year of the
separation
’ Payments that start after you separate from service if paid at least annually in equal or close
to equal amounts over your life or life expectancy (or the lives or joint life expectancy of you
and your beneficiary)
’ Payments from TRS made after you separate from service if you are a public safety employee
and you are at least age 50 in the year of separation
’ Payments made due to disability
’ Payments after your death
’ Corrective distributions of contributions that exceed tax law limitations
’ Payments made directly to the government to satisfy a federal tax levy
’ Payments made under a qualified domestic relations order (QDRO)
’ Payments up to the amount of your deductible medical expenses
If I do a rollover to an IRA, will the 10% additional income tax apply to early distributions
from the IRA?
If you receive a payment from an IRA when you are under age 591/2, you will have to pay the 10%
additional income tax on early distributions from the IRA, unless an exception applies. In general,
the exceptions to the 10% additional income tax for early distributions from an IRA are the same
as the exceptions listed above for early distributions from a plan. However, there are a few
differences for payments from an IRA, including:
Form 6PG3
Rev. 02-15
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There is no exception for payments after separation from service that are made after age 55.
The exception for qualified domestic relations orders (QDROs) does not apply (although a
special rule applies under which, as part of a divorce or separation agreement, a tax-free
transfer may be made directly to an IRA of a spouse or former spouse).
The exception for payments made at least annually in equal or close to equal amounts over
a specified period applies without regard to whether you have had a separation from service.
There are additional exceptions for (1) payments for qualified higher education expenses,
(2) payments up to $10,000 used in a qualified first-time home purchase, and (3) payments
for health insurance premiums after you have received unemployment compensation for 12
consecutive weeks (or would have been eligible to receive unemployment compensation but
for self-employed status).
Will I owe State income taxes?
This notice does not describe any State or local income tax rules (including withholding rules).
SPECIAL RULES AND OPTIONS
If your payment includes after-tax contributions
After-tax contributions included in a payment are not taxed. If a payment is only part of your
benefit, an allocable portion of your after-tax contributions is included in the payment, so you
cannot take a payment of only after-tax contributions. However, if you have pre-1987 after-tax
contributions maintained in a separate account, a special rule may apply to determine whether
the after-tax contributions are included in a payment. In addition, special rules apply when you
do a rollover, as described below.
You may roll over to an IRA a payment that includes after-tax contributions through either a
direct rollover or a 60-day rollover. You must keep track of the aggregate amount of the after-tax
contributions in all of your IRAs (in order to determine your taxable income for later payments
from the IRAs). If you do a direct rollover of only a portion of the amount paid from TRS and at
the same time the rest is paid to you, the portion directly rolled over consists first of the amount
that would be taxable if not rolled over. For example, assume you are receiving a distribution of
$12,000, of which $2,000 is after-tax contributions. In this case, if you directly roll over $10,000
to an IRA that is not a Roth IRA, no amount is taxable because the $2,000 amount not directly
rolled over is treated as being after-tax contributions.
If you do a 60-day rollover to an IRA of only a portion of a payment made to you, the after-tax
contributions are treated as rolled over last. For example, assume you are receiving a distribution
of $12,000, of which $2,000 is after-tax contributions, and no part of the distribution is directly
rolled over. In this case, if you roll over $10,000 to an IRA that is not a Roth IRA in a 60-day
rollover, no amount is taxable because the $2,000 amount not rolled over is treated as being
after-tax contributions.
You may roll over to an employer plan all of a payment that includes after-tax contributions,
but only through a direct rollover (and only if the receiving plan separately accounts for after-tax
contributions and is not a governmental section 457(b) plan). You can do a 60-day rollover to an
employer plan of part of a payment that includes after-tax contributions, but only up to the
amount of the payment that would be taxable if not rolled over.
If you miss the 60-day rollover deadline
Generally, the 60-day rollover deadline cannot be extended. However, the IRS has the limited
authority to waive the deadline under certain extraordinary circumstances, such as when external
events prevented you from completing the rollover by the 60-day rollover deadline. To apply for
a waiver, you must file a private letter ruling request with the IRS. Private letter ruling requests
require the payment of a nonrefundable user fee. For more information see IRS Publication 590,
Individual Retirement Arrangements (IRAs).
Form 6PG4
Rev. 02-15
If you were born on or before January 1, 1936
If you were born on or before January 1, 1936 and receive a lump sum distribution that you do
not roll over, special rules for calculating the amount of the tax on the payment might apply to
you. For more information see IRS Publication 575, Pension and Annuity Income.
If you roll over your payment to a Roth IRA
If you roll over a payment from TRS to a Roth IRA, a special rule applies under which the amount
of the payment rolled over (reduced by any after-tax amounts) will be taxed. However, the 10%
additional income tax on early distributions will not apply (unless you take the amount rolled over
out of the Roth IRA within 5 years, counting from January 1 of the year of the rollover).
If you roll over the payment to the Roth IRA, later payments from the Roth IRA that are qualified
distributions will not be taxed (including earnings after the rollover). A qualified distribution from
a Roth IRA is a payment made after you are age 591/2 (or after your death or disability, or as a
qualified first-time homebuyer distribution of up to $10,000) and after you have had a Roth IRA for
at least 5 years. In applying this 5-year rule, you count from January 1 of the year for which your
first contribution was made to a Roth IRA. Payments from the Roth IRA that are not qualified
distributions will be taxed to the extent of earnings after the rollover, including the 10% additional
tax on early distrubutions (unless an exception applies). You do not have to take required minimum
distributions from a Roth IRA during your lifetime.
For more information, see IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), and IRS Publication 590-B, Distributions from Individual Retirement Arrangements
(IRAs). You should consult your tax advisor if you are interested in rolling over your distributions
to a Roth IRA.
If you are an eligible retired public safety officer and your pension payment is used to pay
for health coverage or qualified long-term care insurance
If you retired as a public safety officer and your retirement was by reason of disability or was after
normal retirement age, you can exclude from your taxable income plan payments paid directly as
premiums to an accident or health plan (or a qualified long-term care insurance contract) that your
employer maintains for you, your spouse, or your dependents, up to a maximum of $3,000 annually.
For this purpose, a public safety officer is a law enforcement officer, firefighter, chaplain, or member
of a rescue squad or ambulance crew.
The Form 1099-R that you receive from TRS will report the deducted insurance premium as taxable.
If you want to take advantage of this $3,000 exclusion, you must report the amount claimed on Form
1040. The instructions to Form 1040 explain that the taxable amount received from the retirement
plan, reduced by the amount of qualified premiums deducted and paid by the retirement plan (not to
exceed $3,000), must be entered on line 16b of the Form 1040. Next to the entry, in the margin, you
must write the letters "PSO". This is an annual election-you will need to report the exclusion for each
year in which you want to claim the exclusion.
If you are not a TRS member, or if you are a member but are receiving a TRS payment as a
beneficiary or alternate payee of another member
Payments after death of a member. If you receive a distribution after the member's death that you do
not roll over, the distribution will generally be taxed in the same manner described elsewhere in this
notice. However, the 10% additional income tax on early distributions and the special rules for public
safety officers do not apply, and the special rule described under the section "If you were born on or
before January 1, 1936" applies only if the member was born on or before January 1, 1936.
Form 6PG5
Rev. 02-15
If you receive a payment from TRS as the surviving spouse of a
deceased member, you have the same rollover options that the member would have had, as described
elsewhere in this notice. In addition, if you choose to do a rollover to an IRA, you may treat the IRA
as your own or as an inheritated IRA.
An IRA you treat as your own is treated like any other IRA of yours, so that payments made to
you before you are age 591/2 will be subject to the 10% additional income tax on early distributions
(unless an exception applies) and required minimum distributions from your IRA do not have to
start until after you are age 701/2.
If you treat the IRA as an inherited IRA, payments from the IRA will not be subject to the 10%
additional income tax on early distributions. However, if the member had started taking required
minimum distributions, you will have to receive required minimum distributions from the inherited
IRA. If the member had not started taking required minimum distributions from TRS, you will not
have to start receiving required minimum distributions from the inherited IRA until the year the
member would have been age 701/2.
If you are a surviving beneficiary other than a spouse. If you receive a payment from TRS
because of the member's death and you are a designated beneficiary other than a surviving spouse,
the only rollover option you have is to a direct rollover to an inherited IRA. Payments from the
inherited IRA will not be subject to the 10% additional income tax on early distributions. You will
have to receive required minimum distributions from the inherited IRA.
Payments under a qualified domestic relations order. If you are the spouse or former spouse of the
member who receives a payment from TRS under a qualified domestic relations order (QDRO), you
generally have the same options the member would have (for example, you may roll over the payment
to your own IRA or another eligible employer plan that will accept it). If you are an alternate payee
other than the spouse or former spouse of the member, you generally have the same options as a
surviving beneficiary other than the spouse, so that the only rollover option you have is to do a
direct rollover to an inherited IRA. Payments under the QDRO will not be subject to the 10%
additional income tax on early distributions.
If you are a surviving spouse.
If you are a nonresident alien
If you are a nonresident alien and you do not do a direct rollover to a U.S. IRA or U.S. employer
plan, instead of withholding 20%, TRS is generally required to withhold 30% of the payment for
federal income taxes. If the amount withheld exceeds the amount of tax you owe (as may happen
if you do a 60-day rollover), you may request an income tax refund by filing Form 1040NR and
attaching your Form 1042-S. See Form W-8BEN for claiming that you are entitled to a reduced
rate of withholding under an income tax treaty. For more information, see also IRS Publication
519, U.S. Tax Guide for Aliens, and IRS Publication 515, Withholding of Tax on Nonresident
Aliens and Foreign Entities.
Other Special Rules
If a payment is one in a series of payments for less than 10 years, your choice whether to make a
direct rollover will apply to all later payments in the series (unless you make a different choice for
later payments).
If your payments for the year are less than $200, TRS is not required to allow you to do a direct
rollover and is not required to withhold for federal income taxes. However, you may do a 60-day
rollover.
You may have special rollover rights if you recently served in the U.S. Armed Forces. For more
information, see IRS Publication 3, Armed Forces' Tax Guide.
Form 6PG6
Rev. 02-15
NOTICE PERIOD
Generally, payment cannot be made from TRS until at least 30 days after you receive this notice.
Thus, you have at least 30 days to consider whether or not to have your payment rolled over. If
you do not wish to wait until this 30-day notice period ends before your election is processed, you
may waive the notice period by making an affirmative election indicating whether or not you wish
to make a direct rollover. Your payment will then be processed in accordance with your election as
soon as practical after it is received by TRS.
FOR MORE INFORMATION
You may wish to consult with TRS, or a professional tax advisor, before taking a payment from
TRS. Also, you can find more detailed information on the federal tax treatment of payments from
employer plans in: IRS Publication 575, Pension and Annuity Income, IRS Publication 590-A,
Contributions to Individual Retirement Arrangements (IRAs), IRS Publication 590-B, Distributions
from Individual Retirement Arrangements (IRAs), and IRS Publication 571, Tax-Sheltered Annuity
Plans (403(b) Plans). These publications are available from a local IRS office, on the web at
www.irs.gov, or by calling 1-800-TAX-FORM.