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.
"Institution OR Trustee" you must provide NPERS with the name and mailing address of the company you are rolling money into on the NPERS Rollover form. 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?
Since my refund does not include the school contributions, what happens to that money?
When will I receive my refund?
When can I apply for a 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 (deferrral) 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 am reemployed prior to the 180 day break in service requirement?
I want to cancel my refund, how do I go about doing this?
I have changed my address. What do I do?
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 1/2, 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?
With the exception of rollovers to a Roth IRA, refunds are not taxable at the time of the rollover to an eligible retirement plan or Traditional IRA. Taxes, and any applicable penalties, will be assessed when you take distributions from the rollover account.
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 (pension). You forfeit these contributions if you take a refund.
When will I receive my refund?
You are eligible to receive a refund no earlier than four months after termination. Due to processing timelines, distribution of a refund will occur no sooner than 20 business days following receipt of your completed application. Applications are processed in the order received and as soon as administratively possible. NPERS cannot issue a refund until we have received the Non-Contributing Member form from the school.
When can I apply for a refund?
You may apply at any time after termination, however refunds cannot be processed by NPERS until four months after your date of termination.
After I turn in my paperwork, then what happens?
Once we have received your Application for a Refund/Refund Election we will review your application and notify you only if we need 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 monthly lifetime annuity (pension) for vested members who have reached retirement age. If you cease employment with 5 or more years of service (vested),
you may defer applying for your benefit until you reach retirement age. If you take a refund, you lose your lifetime annuity benefit. NPERS recommends vested members 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 with any Nebraska public school
or employer participating in the plan (Omaha Public Schools is not a participating employer). Members who defer their accounts and later return to employment with an employer participating in
the plan 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 am reemployed prior to the 180 day break in service requirement?
If you return to employment with any Nebraska public school (with the exception of Omaha Public Schools) or employer participating within 180 days, you will be required to repay the refund and resume participation in the plan. If you are reemployed by any employer participating in the plan after filing an Application for Refund but prior to receiving the refund, you must notify NPERS immediately as you are not eligible to receive a refund. In addition, you should refile a Beneficiary Designation form, since the Application for Refund cancels any previous beneficiary designations.
No, our plan covers all Nebraska Public Schools and ESUs 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.
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.
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.