If you retire on Jan 1st and your last day of work is Dec 31st, which month will you receive your backdrop? I am asking for tax purposes to know if it would be income for Dec or Jan of the next year.
BackDROP payments for someone retiring January 1 will be made on the last working day of January. When the distribution is taxable depends on how you elect to receive the payment.
- If you elect the cash option to receive your BackDROP distribution, it is taxable in the year in which you receive the payment. Under the cash option, 20% of the total amount is withheld for federal income tax purposes.
- If you elect to roll your BackDROP distribution into the state’s deferred compensation plan, a traditional IRA, or eligible employer plan, your payment will not be taxed in the year of the rollover and no income tax will be withheld in connection with the rollover. Distributions from the rollover account will be taxed in the year(s) in which the distributions are received.
Detailed information regarding taxes for your BackDROP distribution may be found in our
Special Tax Notice. A copy of this brochure will be mailed to you at retirement with your Retirement Election Form.
