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Information on Lump Sum Withdrawals/FAQ's

 

Taxes on Lump Sum Payments

If you elect to receive a withdrawal (refund) of your retirement account, NPERS is required to withhold Federal income tax at the rate of 20% of the taxable portion of your refund unless the taxable portion is transferred directly to an IRA or another qualified plan. In addition, if you are a resident of the State of Nebraska, NPERS is required to withhold 5% for State income tax.

A Form 1099R will be sent by January 31 following the year a refund was paid. The Form 1099R gives a breakdown of the taxable and nontaxable portions of the refund and the amount of income tax withheld. NPERS sends a copy to the IRS.

Due to the Federal Tax Reform Act of 1986, some refunds may be assessed a 10% federal tax penalty and a 3% Nebraska tax penalty for early withdrawal. Questions regarding this penalty should be directed to a qualified tax consultant, the Internal Revenue Service, or the Nebraska Department of Revenue.

For more information, please read the section titled "IRS Tax Information (pdf)".

Completing the Application for Refund

ALL information on the application must be completed in full in order to be processed for payment. Please use black ink to complete the application.

This form MUST BE NOTARIZED.

"Employment in Nebraska Public Schools" these dates include all employment in Nebraska Public Schools (excluding Omaha Public Schools). If you are uncertain of this information, please contact the school in which you last worked.

"Selection of Member Options"
  • Option One - Withdraw the entire account (your contributions plus accumulated interest) as lump sum payment to you. Federal income tax will be withheld at 20% and State income tax at 5%; in addition, the IRS and State of Nebraska may assess early withdrawal penalties at the time you file your taxes.
  • Option Two - A transfer of the taxable portion of account directly to another qualified plan or an Individual Retirement Account (IRA) with the after tax portion refunded to you. Please check with your financial institution if they are qualified under IRS guidelines.
  • Option Three - A transfer of a percentage of the taxable portion of the account directly to another qualified plan or an IRA with the remainder refunded to you. Federal income tax will be withheld at 20% and State income tax at 5%; in addition, the IRS and State of Nebraska may assess early withdrawal penalties at the time you file your taxes.
If you select either option two or option three, you must include either a transfer form or a Direct Rollover form from the institution to which you are transferring the funds to. Please contact the Transfer Company for the appropriate form and submit it with the application.

"Institution OR Trustee" you must provide NPERS with the name and mailing address of the company to which you wish your funds to be transferred in addition to the transfer form from the company. This is the information that will be printed on the warrant.

IMPORTANT NOTICE: If you return to work the following school year with any school district under the plan, you will be required to repay this refund.

Frequently Asked Questions


If I decide to take a refund, what are my payment options?

Are there any penalties for withdrawal?

Can I elect to not have federal taxes withheld?

If I choose a Direct Rollover, do I still have to pay taxes or a penalty?

I want to request a direct rollover of my account. What types of account can I roll the money over to?

Since my refund does not include the school contributions, what happens to that money?

When can I apply for a refund?

When will I receive my refund?

After I turn in my paperwork, then what happens?

Can I only take out part of my account and leave the balance with Retirement Systems?

Are there any benefits to leaving my account with the School Retirement Systems?

What is the interest rate my account is earning?

When is interest posted to my account?

What happens if I return to work in a public school?

I am leaving one school to take a job at another school, can I receive a refund of my account?

I am now working in another state, what do I do to transfer my account to the state I am presently working in?

I want to cancel my refund, how do I go about doing this?

I have changed my address. What do I do?

After I receive my refund, will I receive any additional paperwork from Retirement Systems regarding taxes?


If I decide to take a refund, what are my payment options?

You have three options. You may:

(1) Receive a refund of entire account, or

(2) Rollover the entire account directly to another qualified plan or an IRA, or

(3) Rollover a percentage of the account directly to another qualified plan or an IRA, with the remainder refunded to you.

Are there any penalties for withdrawal?

If you take a lump sum payment, NPERS is required to withhold 20% of the taxable portion for federal income tax and 5% for Nebraska income tax. In addition, if you have not reached age 59 ½, you may also be subject to a 10% federal and 3% state penalty for early withdrawal of a retirement account. This penalty is assessed at the time you file your taxes.

Can I elect to not have federal taxes withheld?

No, we are required by law to withhold federal income tax from all refunds.

If I choose a Direct Rollover of the entire account, do I have to pay taxes or a penalty?

No, by choosing a direct rollover you eliminate the federal and state income tax withholding and the penalties for early withdrawal.

I want to request a direct rollover of my account. What types of account can I roll the money over to?

The Nebraska School Retirement System is a qualified retirement plan under 414 (h). Please check with the receiving institution to be sure the account or plan is qualified to receive transfers from our plan.

Since my refund does not include the school contributions, what happens to that money?

The school contributions are used to fund the system for those members who take a monthly (lifetime) annuity. You forfeit these contributions when you take a refund.

When can I apply for a refund?

Per statute, you are eligible to apply for a refund no earlier than four months after your termination of employment.

When will I receive my refund?

Refunds are processed twice each month. Most refund checks are issued within 3 to 4 weeks provided the initial four-month period since termination has elasped, NPERS has received the properly completed paperwork from the member, and the Non-Contributing Member form (verification of termination) from the school.

After I turn in my paperwork, then what happens?

Once we have received your Application for a Refund/Refund Election form, we will review your application and notify you only if we are in need of additional information.

Can I only take out part of my account and leave the balance with Retirement Systems?

No, we are not allowed by law to make partial refunds.

Are there any benefits to leaving my account (deferral) with the School Retirement Systems?

The School retirement plan provides a lifetime annuity for members who have accumulated at least 5 years of service and reached retirement age, or members who cease employment on or after age 65 with at least 1/2 a year of service credit. If you cease employment with 5 or more years of service, you may defer applying for your benefit until you reach retirement age. If you take a refund, you lose your retirement benefit.
NPERS encourages members with 5 or more years of service to carefully consider the consequences of taking a refund. Members with less than 5 years of service should also consider deferring their account if they plan on returning to employment in the Nebraska public school system (with the exception of Omaha Public Schools). Members who do not take a refund and later return to employment with a Nebraska public school will have their previous service included when NPERS calculates the amount of their benefit at retirement.
NOTE: Please refer to the School Plan Booklet (pdf) for additional details on retirement ages and benefit eligibility.

What is the interest rate my account is earning?

Per statute, the interest rate is fixed at a rate equal to the daily treasury yield curve for one-year treasury securities as published by the Secretary of the Treasury of the United States, that applies on July 1st of each year. You may contact NPERS for the current interest rate.

When is interest posted to my account?

Interest is posted monthly.

What happens if I return to work in a Nebraska public school?

If you return to employment in any Nebraska public school (with the exception of Omaha Public Schools) within 180 days, you will be required to repay the refund and resume participation in the plan. If you are re-employed in a Nebraska public school after filing an Application for Refund but prior to actually receiving the refund, you must notify NPERS immediately. You are no longer eligible to receive the refund. In addition, you should refile a Beneficiary Designation form, since the Application for Refund cancels any previous beneficiary designations.
If you return to work in a public school after 180 days, you may keep the refund but this will erase your prior service credit. You have the option to repay all or a portion of the refund within a set time frame in order to restore lost service. You will rejoin the plan as a new member, but will retain your original retirement account number. In addition, you should complete a new Beneficiary Designation form to reestablish your beneficiaries.

I am leaving one school to take a job at another Nebraska Public School, can I receive a refund of my account?

No, our plan covers all Nebraska Public Schools with the exception of Omaha Public Schools. When you leave one school to take a position with another, you are still a member of our Retirement System.

I am now working in another state, what do I do to transfer my account to the state I am presently working in?

We recommend that you discuss this matter with the retirement system of the state that you are currently employed with.

I want to cancel my refund, how do I go about doing this?

Please notify us immediately. We do require written confirmation of this request.

I have changed my address. What do I do?

Please notify us in writing immediately. Failing to notify us of an address change may delay your refund. Please include your social security number and account number with any correspondence.

After I receive my refund, will I receive any additional paperwork from Retirement Systems regarding taxes?

You will receive a Form 1099-R form by January 31 of the following year. This form should be kept for filing with your income tax. The Form 1099-R form gives a breakdown of the taxable and nontaxable portions of the refund and the amount of income tax withheld. The same information is sent to the Internal Revenue Service by this office.




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