NOTE: While TMRS will assist members and retirees with information on tax matters, we cannot give advice or interpret IRS regulations as they might apply to individual circumstances. Those questions should be directed to your tax advisor or the IRS.

Taxes

Monthly Retirement Benefits
Partial Lump Sum Distribution
Rollovers
Refunds
Benefit Limits

TMRS is a qualified, tax-deferred retirement plan under Section 401 of the Internal Revenue Code. You do not pay income tax on your monthly member deposits to TMRS, but you will pay tax when you receive a payment from the System, either as a refund or a monthly benefit.

When you receive a payment from TMRS, all or part of that payment will be subject to federal income taxes, based on the rules and regulations of the Internal Revenue Service. The information in this Benefits Guide is based on IRS regulations in effect at the time this Benefits Guide was published. IRS regulations and federal tax law can change. In any matter involving taxation of your TMRS benefit, TMRS encourages you to contact a tax advisor.

Monthly Retirement Benefits

If you retire and receive a monthly benefit from TMRS, part or all of your monthly benefit will be taxable as income. If you have service credit before January 1, 1984, the portion of your benefit based on the deposits you made before that date will not be taxable. This portion is called the "monthly exclusion amount."

With your first monthly payment, you will receive a statement showing the balance in your account at the time of retirement, including total member deposits, interest, and your monthly exclusion amount, if any. Each year, at the end of January, TMRS will send you a form 1099-R, showing your total retirement payments for the preceding year, the taxable and nontaxable amounts, and the amount of tax withheld by TMRS.

Partial Lump Sum Distribution

When you retire, if you choose to receive part of your benefit as a Partial Lump Sum Distribution (PLSD), that lump sum will be taxable income for the year in which it is payable to you.

The Partial Lump Sum Distribution (PLSD) will be considered taxable income for the year in which you receive it. You can defer paying income tax by rolling over your PLSD into an IRA or other eligible plan.

In certain cases, if you do not roll over your PLSD and receive it directly, you may be subject to an additional 10% tax penalty.

You will not incur the additional 10% penalty on your PLSD if you terminate employment with the TMRS city (from which you retire) in the year you turn age 55 or later. Although you may receive your PLSD directly with no additional 10% tax penalty, you will be subject to regular income tax on the PLSD in the year you receive it.

Federal income tax law requires TMRS to withhold 20% of a PLSD, unless it is rolled over to an IRA, a Section 457 deferred compensation plan for governmental employees, or another eligible plan. If only a part of your PLSD is rolled over into an eligible plan, TMRS will withhold taxes on the part that is not rolled over.

When you apply for a PLSD, the form you will fill out includes a Special Tax Notice Regarding Plan Payments, which contains current information on federal regulations governing distributions and rollovers. The form, including the Special Tax Notice, is also available here.

Rollovers

Your TMRS PLSD or refund is eligible to be rolled over to an IRA or other eligible plan. If you roll over the payment from TMRS, you will defer payment of taxes until the money is withdrawn and you may avoid a tax penalty that you would owe if you received the payment directly. Federal law on rollovers provides that plans eligible to receive a rollover from TMRS (of either a PLSD or a refund) include:

• governmental 457 plans;
• 403 (b) plans;
• 401(a) plans (including 401(k) plans); or
• IRAs.

Plans that are not eligible to receive rollovers include:

• Roth IRAs;
• Simple IRAs; and
• Non-governmental 457 plans.

Once your refund or PLSD is rolled over into another plan, future distributions of the rolled over amount from that plan may be subject to other federal laws and regulations. Please consult a tax advisor.

Refunds

If you leave employment with all TMRS cities and apply for a refund of your member deposits and interest, your refund will be taxable income for the year in which it is payable to you. (A refund of any deposits you made before January 1, 1984, will not be taxed, since those deposits were made before TMRS deposits became tax-deferred.)

When you receive your refund check, you will also receive a statement showing the taxable portion of the refund, along with other information concerning IRS regulations on refunds. TMRS will also mail you a 1099-R form, showing the amount of the refund and taxes withheld, in January of the year following your refund.

A refund will be considered taxable income for the year in which you receive it. You can defer paying income tax by rolling over your refund into an IRA or other eligible plan.

In certain cases, if you do not roll over your refund, you may be subject to an additional 10% tax penalty.

You will not incur the additional 10% penalty on your refund if you terminate employment with the TMRS city in the year you turn age 55 or later. Although you may receive your refund directly with no additional 10% tax penalty, you will be subject to regular income tax on the refund in the year you receive it.

If you terminate employment before the year you turn age 55, then decide to receive a refund directly (not rolled over) before age 59½ -- you may incur the additional 10% tax.

Federal income tax law requires TMRS to withhold 20% of a refund, unless it is rolled over to an IRA, a Section 457 deferred compensation plan for governmental employees, or another eligible plan. If only a part of your refund is rolled over into an eligible plan, TMRS will withhold taxes on the part that is not rolled over.

When you apply for a refund, the form you will fill out includes a Special Tax Notice Regarding Plan Payments, which contains current information on federal regulations governing distributions and rollovers. The form, including the Special Tax Notice, is also available here.

Benefit Limits

As a qualified, tax-deferred retirement plan under the Internal Revenue Code, TMRS is subject to certain limitations on the benefits that a member can receive. In general, the benefit limit effective January 1, 2004, is $165,000 per year.

NOTE: Most TMRS members will not be affected by these federal limits. If you believe you might be affected by these limitations when you retire, please contact TMRS.

The limit is periodically updated by the U.S. Secretary of the Treasury. The limit is reduced if you retire before age 62, except for police officers and firefighters. This reduction can affect younger retirees with higher benefits.

TMRS law provides for the establishment of a Full Benefit Provision to address benefit payments that exceed this limit.

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