2023-02-22 CC Packet - REVISED - Laserfiche WebLink

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account distribution DCP account. If you stay with the same employer, but discontinue contributing to DCP and begin contributing to another Minnesota public pension plan, there may be restrictions on distribution of your DCP account. REQUIRED MINIMUM DISTRIBUTION The Internal Revenue Code mandates a Required Minimum Distribution (RMD) from your qualified retirement plan to be paid by April 1 of the year that follows the later of: If you turned age 70% in 2019 (born prior to June 30, 1949), you will still need to take your RMD for taxes Since the DCP is a tax -qualified plan, contributions made to PERA by you and your employer are tax -deferred and will be considered taxable income when you take a distri- bution of your DCP account. All investment earnings you receive are also considered taxable income. You may owe taxes in the year you receive the distribution or in the future, depending on your withdrawal method: If you choose to have your DCP distribution paid direct- ly to you: • Federal Taxes. The IRS requires PERA to withhold 20 percent of your distribution. PERA sends this amount to the IRS as federal income tax withholding. • State Taxes: PERA does not withhold state tax from your distribution. You may owe state tax on your with- drawal, depending on your state of permanent resi- dence at the time of distribution. Early Withdrawal Tax: If you receive the distribution before age 59/2, you may be subject to an additional 10 percent federal early withdrawal tax. The tax penalty may not be applicable if you terminate public service during or after the year you reach age 55 (age 50 for qualified public safety employees) and then receive your refund. Other exceptions may apply. Consult this IRS guide or a tax specialist for details. Sixty -Day Rollover Option: You can still transfer all or part of the distribution to a tax -deferred qualified plan that accepts rollovers within 60 days of the payment date from PERA. You will not pay taxes on the portion of your distribution that is rolled over until you take it out of the qualified plan. 2019 no later than April 1, 2020. If you are currently receiving RMDs (or should be) because you are over age 70'/2, you must continue taking these RMDs. Only those who turn 70'/z (born on or after July 1, 1949) in 2020 or later may wait until age 72 to begin taking required distributions. The calendar year in which you retire from employ- ment with the employer maintaining the plan. If an RMD is not taken by that date, the IRS may impose an excise tax equal to 50 percent of the amount that should have been taken from your DCP. If you choose a direct rollover, your distribution will be sent directly to another tax -qualified plan: • Taxes: If you transfer your distribution to a tax -de- ferred qualified plan that accepts rollovers, your dis- tribution will not be taxed at the time of the transfer. However, the funds will be taxed later when you take it out of the qualified plan. If you have made after- tax contributions to PERA, these contributions will be non-taxable and cannot be rolled over to a tax -de- ferred qualified plan Roth IRA: You may transfer after-tax contributions to a Roth IRA (an after-tax qualified plan). This can be done by PERA as a direct rollover, or PERA can send you the after tax amount and you can complete the rollover. If you wish to have PERA transfer any or all of the tax -deferred portion of your distribution to a Roth IRA, be aware that this is a taxable event and will be reflected in the Form 1099-R you receive from PERA. While this is a taxable event, the early with- drawal penalty does not apply. It is your responsibility to determine your ultimate tax liability and qualifica- tion for a Roth rollover. Required Minimum Distribution (RMD): See Account Distribution section. Because the DCP is a tax -qualified plan, enrollment may lower the maximum contribution participants can make to a deferred compensation plan and may also, depend- ing upon income level, eliminate the tax deductibility of contributions to a traditional individual retirement account (I RA). 2