Penalty for Retiring Before Age 55?

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I am looking to retire in under 3 years, at that time I will be 51 1/2 years old. I was told that if I retire before the age of 55 there is a huge penalty. Is this correct?
 No. There is no penalty or reduction to your MOSERS pension benefit if you meet both the age and service requirements for normal retirement eligibility before the age of 55 (i.e. through the “Rule of 80” in MSEP & MSEP 2000). Find normal retirement requirements in our summary of benefits for MSEP, MSEP 2000, and MSEP 2011. Check Which Plan Am I In? if you’re not sure.

Taxes &/or penalties related to other distributions:

•        There may be a 10% IRS tax penalty if you are younger than age 55, elect BackDROP*, and take a lump-sum cash payment. Additionally, MOSERS is required to withhold 20% of a BackDROP cash payment for federal taxes. More details are available in the Special Tax Notice brochure on our website. In such a situation, you can avoid the IRS tax penalty by rolling over the BackDROP payment to a qualified retirement account such as with  MO Deferred Comp and not withdrawing it until you meet all IRS regulations (generally speaking, that is after you attain age 59 1/2 but there are exceptions, see page 4 of the Special Tax Notice, including one for public safety employees).
•        If you have made pre-tax contributions to the MO Deferred Comp plan (an internal revenue code section 457(b) plan), distributions from that plan following retirement or termination of service at any age are subject to ordinary income tax only.
•        Employer “match” contributions made on behalf of an employee to a 401(a) plan are subject to an additional 10% penalty if withdrawn prior to age 59 1/2.

Be sure to check with your financial institution or a tax advisor for information about your tax liability when you begin withdrawing your funds.

*BackDROP is available only to general state employees who are members of MSEP & MSEP 2000 and who work at least two years beyond normal retirement eligibility. 

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MOSERS' Funding

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Could you please provide information on the bills that will going through the legislature concerning funding of the retirement system. This information would be helpful for communication with our legislators etc.
MOSERS is funded, in part, through an annual appropriation that must be vetted within the appropriation process of the Missouri General Assembly.  While that bill has not yet been introduced to date, the MOSERS appropriation will be included in “House Bill 5”.  You will be able to find that bill (once introduced) via the House of Representative bill page http://www.house.mo.gov/billlist.aspx.
 
To track other pension related proposals, you may be interested in accessing the Legislative Status Report maintained by the Joint Committee on Public Employee Retirement (JCPER) at http://jcper.org/weekly-pension-legislation/ which is updated weekly. We will keep our members informed through our website, newsletters, and social media if there is any news on retirement-related legislation. The 2017 legislative session ends on May 12, 2017.

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Retiree 1099-R Tax Forms

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When will Tax form 1099 be available? Will it be available on line?
By January 31, MOSERS will mail your 1099-R form. This form lists your 2016 retirement benefit income from MOSERS. You will need this form to file your income tax return.

If you prefer an electronic copy of your 1099-R or if you find you need a replacement copy of it, simply log in to your Member Homepage and you will find it listed under Personal Information. Your 1099-R form will be available for you to view or print after they have been mailed. Please watch the MOSERS website for updated information

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Deductions for the Missouri MOST Program?

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Does MOSERS allow for automatic payroll deductions from our retirement pay to be directed to the MOST program. Thank you.
No. Unfortunately, you may not have deductions taken from your MOSERS benefit payments for the MOST/Missouri’s 529 College Savings Plan. However, according to their website and a plan representative, you can set up automatic, recurring transfers from your bank account. We encourage you to contact the MOST program directly to get information about how to continue to participate.

If applicable, the following deductions may be withheld from your monthly MOSERS benefit payment:
• Missouri income tax as specified on your Substitute W-4P form
• Federal income tax as specified on your Substitute W-4P form (without this form, MOSERS is required to withhold federal taxes as if you are married and claiming three exemptions)
• MOSERS optional life insurance premium
• Missouri Consolidated Health Care Plan premium
• Department of Conservation’s health and life insurance premiums
• Miscellaneous deductions such as vision and dental insurance, and Missouri State Employees’ Charitable Campaign (MSECC) contributions

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Resignation and the Rule of 80

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 If I were to resign prior to my 80 and out date. When can I draw my benefits? My understanding was that I could draw once my age and my service time = 80 and out. However, I've heard that if I were to resign prior to 80 and out I would have to wait until I was 62 to draw my benefit? Could you clarify this for me please?
Yes, if you are a member of MSEP and you resign before reaching normal retirement eligibility, you may still retire under “80 & Out” (the Rule of 80). Plan provisions in MSEP*, allow members who terminate employment to “age into” the Rule of 80. (This does NOT apply to members of MSEP 2000 or MSEP 2011**.)

However, keep in mind that resigning before reaching eligibility may delay when you reach “80 & Out” and reduce your benefit because you will no longer be accruing service. So, you may have to wait longer to begin receiving a smaller benefit.

Here is a brief explanation of the Rule of 80, an example to illustrate eligibility, and more information about how resigning sooner can delay your retirement eligibility and reduce your benefit:

Under the Rule of 80, your age and service must equal 80 or more (and you must be at least age 48).

Example of Rule of 80 Eligibility:

Age                      55 years               4 months
Service                24 years               8 months
                           79 years               12 months

Let’s say you terminated your employment a year before you would reach eligibility (at age 54 years and 4 months + 23 years and 8 months of service = 78). As time goes by, the number value of your age continues to increase, but your service no longer increase, so it would take you 2 years, instead of 1, until your age and service equals 80 (56 years and 4 months of age + 23 years and 8 months of service = 80). Also, your benefit amount will be less because service is one part of the benefit formula:

Final Average Pay x Credited Service x Multiplier = Monthly Base Benefit

All this being the case, we understand that there may be good reasons to do so based on your individual life situation or circumstance beyond your control. Plan provisions are based on state law. We understand they are rather complicated and we are available to help explain further over the phone or during and in-person appointment. We can also help you compare benefit estimates based on different termination dates. View our Contact Us page to reach a MOSERS benefit counselor.

*Which Plan Am I In?
**Plan provisions for MSEP 2000, do not allow members to “age into” the Rule of 80/80 & Out. Plan provisions for MSEP 2011, do not allow members to “age into” the Rule of 90/90 & Out.

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Taxes on Retirement Benefit

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Are retirement payments taxed?
Yes, retirement benefits are considered taxable income and Missouri income tax and federal income tax can be withheld from your MOSERS monthly retirement payments.

However, in a recent RetireeNews article we described the public pension exemption. Depending on a variety of factors (including, but not limited to, income, filing status, and age) you may be able to deduct some or all of your public retirement benefit on your Missouri tax return, to the extent the amounts are included in your federal adjusted gross income. MOSERS recommends you contact the Department of Revenue or a qualified tax advisor for additional information or answers to your specific questions about the public pension exemption.

At retirement, you may specify your federal and state tax withholding preferences by completing a Tax Withholding Authorization (Substitute W4-P) form, which you can do by logging into your Member Homepage on MOSERS’ website. MOSERS has a federal tax calculator on our website to help estimate your withholdings:
https://www.mosers.org/Members/Calculators/Federal-Tax-Calculator.aspx

MOSERS will withhold state taxes only for Missouri residents. If you aren’t a Missouri resident in retirement, we recommend you contact the appropriate state and local tax authorities to determine the taxability of your MOSERS benefit.

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