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Financial Planning / Tax Strategies
|Subject: Re: 1099R for a Transfer?||Date: 2/28/2013 5:36 PM|
|Author: DWBardy||Number: 117903 of 122325|
Thanks for your response.
When a teacher leaves a state retirement system, they can withdraw their retirement contributions - if so, they obviously forfeit any "years of service" toward their pension plan. However, if a teacher later comes back into the system, they can buy-back or re-purchase those previously-withdrawn funds (plus interest) and get the years of service included in their retirement computation, as though they had never left. So that's what I mean by "repay years of service credit."
I can say with 99.9% certainty this is a non-taxable situation. Several states like Massachusetts and Texas have information on their teachers' retirement websites discussing the use of rollovers to buy back years of service. They specifically reference EGTRRA, the Economic Growth and Tax Relief Reconciliation Act of 2001, and state that one of its main features was increased portability of funds in retirement accounts. One website states about the changes:
"...Under prior law, many employees had a difficult time
moving money from one type of retirement savings plan to
another, causing havoc for job switchers. Many of the
restrictions on rollovers between plans and IRAs have
been relaxed. The requirement to roll over to a similar plan or
arrangement is no longer applicable. For eligible rollover distributions taken after January 1, 2002, amounts can generally be rolled over to any other qualified plan. Investors can roll over most types of employer-sponsored plans into another plan or an IRA, or roll over an IRA into a qualified plan, if their new employer’s plan accepts
An employer's IRC 401A plan should fit the definition of a "qualified plan" and therefore it would seem the transfer would be nontaxable.
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