Leaving your current TRS-eligible job before you retire may have an impact on your benefits. The nature of the impact depends on whether you are vested in TRS, where you are next employed, and whether you withdraw your contributions from TRS.
If you leave TRS-covered employment, you may withdraw the contributions you made to TRS. Withdrawal of contributions before retirement cancels all rights and benefits you may have accrued in TRS.
Withdrawal forms are included in the DRS publication Withdrawal of Retirement Contributions which is available through your employer or DRS. Processing a withdrawal normally requires 60 to 90 days.
If you resume employment with a TRS-covered employer before payment is made, you are not eligible to receive a withdrawal. If you receive a refund under these circumstances, you must return it to DRS immediately.
Under federal law, any lump-sum withdrawal of tax-deferred retirement funds is subject to a withholding tax of 20 percent. The 20 percent tax can be avoided only by a “direct rollover” of funds to a qualified tax-deferred retirement account. You can find more about this requirement by reading Withdrawal of Retirement Contributions, a publication which is available through your employer or DRS.
Federal tax law may require that you pay a 10 percent penalty at the time you file your income tax. This penalty is in addition to regular income tax on the tax-deferred and interest portions of contributions that you withdraw before you reach age 59 1/2. You may be able to avoid this tax penalty by rolling these funds into a qualified tax-deferred retirement account.
DRS is required to report all withdrawals to the IRS. It is your responsibility to account for the withdrawal on your tax return. For more information on the tax consequences of withdrawing your contributions, contact the IRS or your tax advisor.
You have the option of leaving your contributions in the plan until April 1 of the year following the year in which you turn age 70 1/2 or retire, whichever is later. At present your contributions are earning 5.5 percent interest annually, compounded quarterly. If you leave your contributions in the plan and later return to a TRS-covered position, you retain service credit for the earlier service.
If you leave a TRS-covered position and leave your contributions in the plan, keep TRS informed of your current name, address and beneficiary.
If your next job is in an eligible position with another public school in Washington state, your membership and service credit will continue.