Withdrawing Contributions

Withdrawal Eligibility

KPERS Members Who Cannot Withdraw

Special Notice for School Members

Withdrawal Procedures

Payment Methods

FORMS

Application for Withdrawal of Contributions/Related Forms and Instructions

Tax Information About Plan Payments

• Kansas State Tax Information
• Summary
• Payments That Can and Cannot Be Rolled Over
• Direct Rollover
• Payment Paid to You
• Surviving Spouses And Alternate Payees
• Special Rules for Surviving Spouses and Alternate Payees
• For Additional Information

Withdrawal Eligibility

A member is eligible to withdraw his or her Retirement System contributions plus interest 31 days after his or her last day on the employer’s payroll, provided he or she has not returned to any employment with any participating employer. When withdrawing, members forfeit all Retirement System rights, benefits and service credit.

Internal Revenue Code (IRC) requires a "distributable event" before the Retirement System can make a distribution to a member. A distributable event:

• retirement
• death
• separation from service

Specific rules apply to the situations involving a member’s separation from service.

In the following situations, members are not allowed to withdraw their contributions.

A member:

• transfers to an uncovered position because of reduced hours with the same employer
• transfers from a KPERS position to a KP&F or Judges’ Retirement System position (or vice versa) with the same employer
• is re-classified by the employer to a position that is covered by another plan
• who is a state employee covered by KPERS transfers to a Board of Regents institution (all state agencies, including Regents institutions, are a single employer)
• employed by a Board of Regents institution transfers from one Regents institution to another
• employed by a Board of Regents institution transfers from classified to unclassified service (i.e. from the KPERS plan to the Regents plan);
• ended employment less than 31 days ago

The IRC does allow members to withdraw when they change employers and change retirement systems. For example, a member worked for the city and was a police officer with KP&F. The member left his job as a police officer and went to work in a school district as a teacher with KPERS. This member would be allowed to withdraw his contributions and interest because the member changed employers and changed retirement systems.

Return to withdrawal topic list

KPERS Members Who Cannot Withdraw

Because some members are not allowed to withdraw from KPERS, State law was amended in 2000. The legislation provides vesting in KPERS with less than ten years of service for certain members who transfer to a different retirement plan or who become ineligible for participation in KPERS because of reduced hours on their job. This applies to all members of KPERS when a member moves to a non-covered KPERS covered position but remains employed by the same employer.

Return to withdrawal topic list

Special Notice for School Members

Any teacher who substantially completes his or her contractual obligations and then resigns must be reported to the Retirement System through the end of the contract year. The Continuing Contract Law specifies the period from September 1 through August 31. Therefore, teachers will need to wait until October 1 to apply to withdraw. Administrators may apply to withdraw 30 days after the end-date of their last contract.

Return to withdrawal topic list

Withdrawal Procedures

Member submits an Application for Withdrawal of Contributions (KPERS-13 form). The member must wait 31 full days after he or she has ended employment to file the form.

Timeline:

• The last day on payroll with a participating employer is the termination date.
• The first day after the termination date becomes day one, the second day becomes day two, etc.
• On day 31, the member may apply to withdraw as long as:

  1. the member is not now in covered employment under the same plan, and
  2. the member is not in any position with the same employer.

The Retirement System takes approximately four weeks to process the application once we receive it. If the withdrawing member is vested, spousal consent is required before withdrawal, or the withdrawal will not be paid
for 90 days.

Return to withdrawal topic list

Payment Methods

There are two ways a member can receive a Retirement System payment:

1. Direct rollover
2. Paid to member

Return to withdrawal topic list

Tax Information About Plan Payments

• Rollover Payments
• Lump-sum payments
• Spouse and beneficiary benefits

This section explains how you can continue to defer federal income tax on your retirement savings in the Kansas Public Employees Retirement System (“KPERS” or “Plan”) and contains important information you will need before you decide how to receive your KPERS benefits.

Note: If you have an electronic version (PDF, 364KB) of this booklet, you may request a paper copy from KPERS at no charge to you.

Kansas State Tax Information
During its 2007 Session, the Kansas Legislature passed Senate Substitute for Substitute for House Bill 2457, which nullifies certain tax-related restrictions on KPERS rollover provisions. With the passage of this bill, KPERS members will now enjoy tax-exempt status for all funds rolled over into qualified IRAs, whether those funds are commingled or not. For more information about Kansas state taxes, please contact the Kansas Department of Revenue or a qualified tax preparer.

The following federal tax information is provided to you by KPERS because all or part of the payment that you will soon receive from KPERS may be eligible for rollover by you or KPERS to an IRA or an eligible employer plan. A rollover is a payment by you or KPERS of all or part of your benefit to another plan or IRA that allows you to continue to postpone taxation of that benefit until it is paid to you. Your payment cannot be rolled over to a Roth IRA, a SIMPLE IRA, or a Coverdell Education Savings Account (formerly known as an education IRA). Note, however, that for a distribution made after December 31, 2007, your payment can be rolled over to a Roth IRA subject to the same limits that apply to rollovers from a traditional IRA to a Roth IRA (i.e., for tax years prior to January 1, 2010, your adjusted gross income cannot exceed $100,000 and you must not be married filing separately). An “eligible employer plan” includes a plan qualified under section 401(a) of the Internal Revenue Code, including a 401(k) plan, profit-sharing plan, defined benefit plan, stock bonus plan, and money purchase plan; a section 403(a) annuity plan; a section 403(b) tax-sheltered annuity; and an eligible section 457(b) plan maintained by a governmental employer (governmental 457 plan).

An eligible employer plan is not legally required to accept a rollover. Before you decide to roll over your payment to another employer plan, you should find out whether the plan accepts rollovers and, if so, the types of distributions it accepts as a rollover. You should also find out about any documents that are required to be completed before the receiving plan will accept a rollover. Even if an eligible employer plan accepts rollovers, it might not accept rollovers of certain types of distributions, such as after-tax amounts. If this is the case, and your distribution includes after-tax amounts, you may wish instead to roll your distribution over to an IRA or split your rollover amount between the employer plan in which you will participate and an IRA. If an eligible employer plan accepts your rollover, the plan may restrict subsequent distributions of the rollover amount or may require your spouse’s consent for any subsequent distribution. A subsequent distribution from the plan that accepts your rollover may also be subject to different tax treatment than distributions from KPERS. Check with the administrator of the plan that is to receive your rollover prior to making the rollover.

If you have additional questions after reading this booklet, you can contact KPERS toll-free at (888) 275-5737 or locally at (785) 296-6166. Information is also available on the KPERS web site at www.kpers.org, and you can e-mail us at kpers@kpers.org.

Summary

There are two ways you may be able to receive a KPERS payment that is eligible for rollover:

• Certain payments can be made directly to an IRA that you establish or to an eligible employer plan that will accept it and hold it for your benefit (“direct rollover”); or

• The payment can be paid to you.

If You Choose a Direct Rollover to a Traditional IRA or an Eligible Employer Plan:
Your payment will not be taxed in the current year and no income tax will be withheld.

• You choose whether your payment will be made directly to your traditional IRA or to an eligible employer plan that accepts your rollover. Your payment cannot be rolled over to a Roth IRA (see the special rules for rollovers to Roth IRAs below), a SIMPLE IRA, or a Coverdell Education Savings Account because these are not traditional IRAs.

• The taxable portion of your payment will be taxed later when you take it out of the traditional IRA or the eligible employer plan. Depending on the type of plan, the later distribution may be subject to different tax treatment than it would be if you received a taxable distribution from KPERS.

Note that for a distribution made after December 31, 2007, you can choose a direct rollover to a Roth IRA subject to the same limits that apply to rollovers from a traditional IRA to a Roth IRA (i.e., for tax years prior to January 1, 2010, your adjusted gross income cannot exceed $100,000 and you must not be married filing separately). If you make a direct rollover of your distribution to a Roth IRA, the amount of your distribution will be included in your taxable income (except for any portion of the distribution that represents a return of your after-tax contributions to KPERS). You may be able to elect to delay recognizing the distribution as part of your taxable income until 2011 and 2012 if you elect a direct rollover to a Roth IRA in the 2010 taxable year. A direct rollover of your distribution to a Roth IRA avoids the 10 percent tax on early distributions received prior to the date you reach age 59-1/2, become disabled, or retire under the terms of KPERS. You should consult your tax advisor if you are interested in rolling over your distribution to a Roth IRA.

If You Choose to Have a KPERS Payment That Is Eligible for Rollover Paid to You:

• You will receive only 80 percent of the taxable amount of the payment, because KPERS is required to withhold 20 percent of that amount and send it to the IRS as income tax withholding to be credited against your taxes.

• The taxable amount of your payment will be taxed in the current year unless you roll it over. Under limited circumstances, you may be able to use special tax rules that could reduce the tax you owe. However, if you receive the payment before age 59-1/2, you may have to pay an additional 10 percent tax. See special note for qualified public safety employees.

• You can roll over all or part of the payment by paying it to your IRA or to an eligible employer plan that accepts your rollover within 60 days after you receive the payment. The amount rolled over to a traditional IRA or eligible employer plan will not be taxed until you take it out of the traditional IRA or the eligible employer plan.

• If you want to roll over 100 percent of the payment to a traditional IRA or an eligible employer plan, you must find other money to replace the 20 percent of the taxable portion that was withheld. If you roll over only the 80 percent that you received, you will be taxed on the 20 percent that was withheld and that is not rolled over.

Qualified Public Safety Employees. If you are a “qualified public safety employee” who ends employment in the calendar year in which you are age 50 or older, and receive an eligible rollover distribution, you will not have to pay the additional 10 percent tax on a payment that is eligible for rollover and paid to you. You are a “qualified public safety employee” if you are an employee of a State or political subdivision of a State (such as a county or city) whose principal duties include services requiring specialized training in the area of police protection, firefighting services, or emergency medical services for an area within the jurisdiction of the State or political subdivision.

Your Right to Waive the 30-Day Notice Period. Generally, neither a direct rollover nor a payment can be made from KPERS until at least 30 days after your receipt of this information. Thus, after receiving this information, you have at least 30 days to consider whether or not to have your distribution directly 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 distribution will then be processed in accordance with your election as soon as practical after it is received by KPERS.

More Information

1. Payments That Can and Cannot Be Rolled Over
2. Direct Rollover
3. Payment Paid to You
4. Surviving Spouses And Alternate Payees
5. Special Rules for Surviving Spouses and Alternate Payees
6. For Additional Information

I. Payments That Can and Cannot Be Rolled Over

Payments from KPERS may be “eligible rollover distributions.” This means that they can be rolled over to a traditional IRA or to an eligible employer plan that accepts rollovers. Beginning January 1, 2008, they can also be rolled over to a Roth IRA. Payments from a plan cannot be rolled over to a SIMPLE IRA or a Coverdell Education Savings Account. KPERS should be able to tell you what portion of your payment is an eligible rollover distribution.

After-Tax Contributions
If you made after-tax contributions to KPERS, these contributions may be rolled into either a traditional IRA or to certain employer plans that accept rollovers of after-tax contributions. The following rules apply:

Rollover Into a Traditional IRA
You can roll over your after-tax contributions to a traditional IRA either directly or indirectly. KPERS should be able to tell you how much of your payment is the taxable portion and how much is the after-tax portion.

If you roll over after-tax contributions to a traditional IRA, it is your responsibility to keep track of, and report to the IRS on the applicable forms, the amount of these after-tax contributions. This will enable the nontaxable amount of any future distributions from the traditional IRA to be determined.

Once you roll over your after-tax contributions to a traditional IRA, those amounts cannot later be rolled over to an employer plan.

Rollover Into an Employer Plan
You can roll over after-tax contributions from an employer plan that is qualified under section 401(a) to another such plan or to a section 403(b) annuity contract using a direct rollover if the other plan or annuity contract provides separate accounting for amounts rolled over, including separate accounting for the after-tax employee contributions and earnings on those contributions. If you want to roll over your after-tax contributions to an employer plan that accepts these rollovers, you cannot have the after-tax contributions paid to you first. You must instruct KPERS to make a direct rollover on your behalf. You can also roll over after-tax contributions from an employer plan that is qualified under section 401(a) to a traditional IRA; however, you cannot first roll over after-tax contributions to a traditional IRA and then roll over that amount into an employer plan. You cannot roll over after-tax contributions to a governmental 457 plan.

Payments That Cannot Be Rolled Over
The following types of payments cannot be rolled over:

Payments Spread over Long Periods
You cannot roll over a payment if it is part of a series of equal (or almost equal) payments that are made at least once a year and that will last for:

• Your lifetime (or a period measured by your life expectancy), or
• Your lifetime and your beneficiary’s lifetime (or a period measured by your joint life expectancies), or
• A period of ten years or more.

Required Minimum Payments
If you are age 70-1/2 or older upon retirement, you will be required to immediately begin taking the “minimum required payments” under federal law, which amounts cannot be rolled over. You may roll over any eligible rollover distribution amount (a lump-sum or partial lump-sum) that exceeds the minimum required payments.

Corrective Distributions
A distribution that is made because legal limits on certain contributions were exceeded cannot be rolled over. KPERS should be able to tell you if your payment includes amounts which cannot be rolled over.

II. Direct Rollover

A direct rollover is a direct payment of the amount of your KPERS benefits to an IRA or an eligible employer plan that will accept it. You can choose a direct rollover of all or any portion of your payment that is an eligible rollover distribution, as previously described in Part I. Except for a direct rollover to a Roth IRA on or after January 1, 2008, you are not taxed on any taxable portion of your payment for which you choose a direct rollover until you later take it out of the traditional IRA or eligible employer plan. In addition, no income tax withholding is required for any taxable portion of your KPERS benefits for which you choose a direct rollover. If you wish to divide your eligible rollover distribution between more than one IRA or eligible employer plan, KPERS requires a minimum rollover amount of $500.

Direct Rollover to an IRA
You can open a traditional IRA, or beginning January 1, 2008, a Roth IRA, to receive the direct rollover. If you choose to have your payment made directly to an IRA, contact an IRA sponsor (usually a financial institution) to find out how to have your payment made in a direct rollover to an IRA at that institution. If you are unsure of how to invest your money, you can temporarily establish an IRA to receive the payment. However, in choosing an IRA, you may wish to make sure that the IRA you choose will allow you to move all or a part of your payment to another IRA at a later date, without penalties or other limitations. See IRS Publication 590, Individual Retirement Arrangements, for more information on IRAs (including limits on how often you can roll over between IRAs).

Direct Rollover to a Plan
If you work for a new employer that has an eligible employer plan, and you want a direct rollover to that plan, ask the plan administrator whether it will accept your rollover. An eligible employer plan is not legally required to accept a rollover. Even if your new employer’s plan does not accept a rollover, you can choose a direct rollover to an IRA. If the employer plan accepts your rollover, the plan may provide restrictions on the circumstances under which you may later receive a distribution of the rollover amount or may require spousal consent to any subsequent distribution. Check with the plan administrator before making your decision.

Direct Rollover of a Series of Payments
If you receive a payment that can be rolled over to an IRA or an eligible employer plan that will accept it, and it is paid in a series of payments for less than 10 years, your choice to make or not make a direct rollover for a payment will apply to all later payments in the series until you change your election. You are free to change your election for any later payment in the series.

Change in Tax Treatment Resulting From a Direct Rollover
The tax treatment of any payment from the eligible employer plan or IRA receiving your direct rollover might be different than if you received your benefit in a taxable distribution directly from KPERS. For example, if you were born before January 1, 1936, you might be entitled to ten-year averaging or capital gain treatment, as explained below. However, if you have your benefit rolled over to a section 403(b) tax-sheltered annuity, a governmental 457 plan, or an IRA in a direct rollover, your benefit will no longer be eligible for that special treatment. See the sections entitled “Additional 10 Percent Tax If You Are Under Age 59-1/2” and “Special Tax Treatment If You Were Born Before January 1, 1936.”

III. Payment Paid to You

If your payment can be rolled over (see Part I) and the payment is made to you in cash, it is subject to 20 percent federal income tax withholding on the taxable portion. State tax withholding may also apply. The payment is taxed in the year you receive it unless, within 60 days, you roll it over to an IRA or an eligible employer plan that accepts rollovers. If you do not roll it over, special tax rules may apply.

Federal Income Tax Withholding

Mandatory Withholding
If any portion of your payment can be rolled over under Part I and you do not elect to make a direct rollover, KPERS is required by law to withhold 20 percent of the taxable amount. This amount is sent to the IRS as federal income tax withholding. For example, if you can roll over a taxable payment of $10,000, only $8,000 will be paid to you because KPERS must withhold $2,000 as income tax. However, when you prepare your income tax return for the year, unless you make a rollover within 60 days (see “Sixty-Day Rollover Option” below), you must report the full $10,000 as a taxable payment from KPERS. You must report the $2,000 as tax withheld, and it will be credited against any income tax you owe for the year. There will be no income tax withholding if your payments for the year are less than $200.

Voluntary Withholding
If any portion of your payment is taxable but cannot be rolled over under Part I, the mandatory withholding rules described previously 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 KPERS for the election form and related information.

Sixty-Day Rollover Option
If you receive a payment that can be rolled over under Part I (except after-tax amounts), you can still decide to roll over all or part of it to an IRA or to an eligible employer plan that accepts rollovers. If you decide to roll over, you must contribute the amount of the payment you received to an IRA or eligible employer plan within 60 days after you receive the payment. Unless you roll over your distribution to a Roth IRA, the portion of your payment that is rolled over will not be taxed until you take it out of the IRA or eligible employer plan. If you roll over to a Roth IRA, the distribution will be included in your taxable income for the year in which it was paid to you.

If you want to roll over a payment you received to a traditional IRA or eligible employer plan, you can roll over up to 100 percent of your payment (that can be rolled over as explained under Part I), including an amount equal to the 20 percent of the taxable portion that was withheld. If you choose to roll over 100 percent, you must find other money within the 60-day period to contribute to the traditional IRA or the eligible employer plan, to replace the 20 percent that was withheld. On the other hand, if you roll over only the 80 percent of the taxable portion that you received, you will be taxed on the 20 percent that was withheld.

• Example: The taxable portion of your payment that can be rolled over under Part I is $10,000, and you choose to have it paid to you. You will receive $8,000, and $2,000 will be sent to the IRS as income tax withholding. Within 60 days after receiving the $8,000, you may roll over the entire $10,000 to a traditional IRA or an eligible employer plan. To do this, you roll over the $8,000 you received from KPERS, and you will have to find $2,000 from other sources (your savings, a loan, etc.). In this case, the entire $10,000 is not taxed until you take it out of the traditional IRA or an eligible employer plan. If you roll over the entire $10,000, when you file your income tax return you may get a refund of part or all of the $2,000 withheld.
  
  If, on the other hand, you roll over only $8,000, the $2,000 you did not roll over is taxed in the year it was withheld. When you file your income tax return, you may get a refund of part of the $2,000 withheld. (However, any refund is likely to be larger if you roll over the entire $10,000.)

Additional 10 Percent Tax If You Are Under Age 59-1/2
If you receive a payment before you reach age 59-1/2 and you do not roll it over, then, in addition to the regular income tax, you may have to pay an extra tax equal to 10 percent of the taxable portion of the payment. The additional 10 percent tax generally does not apply to (1) payments that are paid after you separate from service with your employer during or after the year you reach age 55, (2) payments that are paid because you retire due to disability, (3) payments that are paid as equal (or almost equal) payments over your life or life expectancy (or your and your beneficiary’s lives or life expectancies), (4) payments that are paid directly to the government to satisfy a federal tax levy, (5) payments that are paid to an alternate payee under a qualified domestic relations order, (6) payments that do not exceed the amount of your deductible medical expenses, or (7) payments to a qualified public safety employee who separates from service during or after the year reaching age 50. See IRS Form 5329 for more information on the additional 10 percent tax.

Special Tax Treatment If You Were Born Before January 1, 1936
If you receive a payment from a plan qualified under section 401(a) that can be rolled over under Part I and you do not roll it over to a traditional IRA or an eligible employer plan, the payment will be taxed in the year you receive it. However, if the payment qualifies as a “lump-sum distribution,” it may be eligible for special tax treatment. A lump-sum distribution is a payment, within one year, of your entire balance under KPERS (and certain other similar plans of the employer) that is payable to you after you have reached age 59-1/2 or because you have separated from service with your employer (or, in the case of a self-employed individual, after you have reached age 59-1/2 or have become disabled). For a payment to be treated as a lump-sum distribution, you must have been a participant in KPERS for at least five years before the year in which you received the distribution. The special tax treatment for lump-sum distributions that may be available to you is described below.

Ten-Year Averaging
If you receive a lump-sum distribution and you were born before January 1, 1936, you can make a one-time election to figure the tax on the payment by using “ten-year averaging” (using 1986 tax rates). Ten-year averaging often reduces the tax you owe.

Capital Gain Treatment
If you receive a lump-sum distribution and you were born before January 1, 1936, and you were a participant in KPERS before 1974, you may choose to have the part of your payment that is attributable to your pre-1974 participation in KPERS taxed as long-term capital gain at a rate of 20 percent.

There are other limits on the special tax treatment for lump- sum distributions. For example, you can generally choose this special tax treatment only once in your lifetime, and the choice applies to all lump-sum distributions that you receive in that same year. You may not choose this special tax treatment if you rolled amounts into KPERS from a 403(b) tax-sheltered annuity contract, a governmental 457 plan, or from an IRA not originally attributable to a qualified employer plan. If you have previously rolled over a distribution from KPERS (or certain other similar plans of the employer), you cannot use this special averaging treatment for later payments from KPERS. If you roll over your payment to an IRA, governmental 457 plan, or 403(b) tax-sheltered annuity, you will not be able to use special tax treatment for later payments from that IRA, plan, or annuity. Also, if you roll over only a portion of your payment to an IRA, governmental 457 plan, or 403(b) tax-sheltered annuity, this special tax treatment is not available for the rest of the payment. See IRS Form 4972 for additional information on lump-sum distributions and how you elect the special tax treatment.

IV. Surviving Spouses And Alternate Payees

In general, the rules summarized earlier that apply to payments to KPERS members also apply to payments to surviving spouses of KPERS members and to spouses or former spouses who are “alternate payees.” You are an alternate payee if your interest in KPERS results from a “qualified domestic relations order,” which is an order issued by a court, usually in connection with a divorce or legal separation.

If you are a surviving spouse or an alternate payee, you may choose to have a payment that can be rolled over, as described in Part I, paid in a direct rollover to an IRA or to an eligible employer plan or paid to you. If you have the payment paid to you, you can keep it or roll it over yourself to an IRA or to an eligible employer plan. Generally, you have the same choices as the KPERS member.

V. Special Rules for Surviving Spouses and Alternate Payees

If you are a surviving spouse or an alternate payee, your payment is generally not subject to the additional 10 percent tax described in Part III, even if you are younger than age 59-1/2.

If you are a surviving spouse or an alternate payee, you may be able to use the special tax treatment for lump-sum distributions, as described in Part III. If you receive a payment because of a KPERS member’s death, you may be able to treat the payment as a lump-sum distribution if the member met the appropriate age requirements, whether or not the member had five years of service credit.

VI. For Additional Information

This information summarizes tax rules that might apply to your payment. The rules described earlier are complex and contain many conditions and exceptions that are not included in this information. Therefore, you may want to consult with KPERS or a professional tax advisor before you take a benefit payment from KPERS. Also, you can find more specific information on the tax treatment of payments from qualified employer plans in IRS Publication 575, Pension and Annuity Income, and IRS Publication 590, Individual Retirement Arrangements. These publications are available from your local IRS office, on the IRS’s Internet Web Site at www.irs.gov, or by calling (800) TAX-FORMS.

Revised 6/07

Return to withdrawal topic list