Retiree DROP Information
Important Notes
Below are important topics of interest concerning the management of your DROP account after retirement:
- Investment Accounts - After exiting DROP you have total investment control of your DROP account, including the responsibility for account fund allocation.
- Begin Payments - If you have not started receiving scheduled payments yet, you may choose one of the available payment options voluntarily until you reach age 701/2, at which point mandatory payment must begin.
- Loans - No loans are allowed from a DROP account after retirement.
- Penalties - Early withdrawal of funds will incur a 10% penalty.
- Withholding Tax - The Federal Government mandates that a 20% withholding tax be held on payments when the amount will cause the payout not to last 10 years or more.
Payment Options
You must select one of the following options upon termination of employment (including retirement):
1) Schedule periodic payment (ex., monthly)
2) Defer decision on payment option until age 70 1/2
3) Roll over funds to another qualified Retirement Plan, Traditional IRA, or Roth IRA.
4) Receive a lump-sum payout
For a more detailed explanation of these options download and read Payment Options at Retirement (PDF).
- No withdrawal is allowed until termination of employment
To request a DROP Payout Estimate please contact the Retirement Office
(to request an estimate of what your monthly payments would be with the options available)
Loans
No loans are allowed from your DROP account.
IRS Tax/Penalties
Please take note of these IRS rules:
1) Unless a withdrawal is rolled over to an IRA or other qualified Retirement Plan, the withdrawal amount is taxable.
2) You may withdraw funds from your DROP account provided you have terminated employment, however if you have not reached age 55 at the time you separated employment, there may be a 10% penalty on any withdrawal.
3) If you have arranged to receive monthly or scheduled payments, a 20% mandatory withholding tax is automatically deducted from withdrawal payments if the payment amount will cause the payout not to last 10 years or more.
Forms & Publications
Beneficiary Designation Form (PDF)
Direct Deposit DROP Form (PDF)
W4P Withholding Form (PDF)
Payout Options at Retirement for 457 RSVP, 175/185 Supplemental Share, and DROP (PDF)
DROP Termination Distribution Form (PDF)