Special Tax Ntice Regarding 403(b) (TSA) Distributins P.O. Bx 7893 Madisn, WI 53707-7893 1-800-279-4030 Fax: (608) 237-2529 The IRS requires us t prvide yu with a cpy f the Explanatin f Direct Rllver, Withhlding, and Tax Rules Affecting TSA Accunt Distributins nt less than 30 days, but n mre than 180 days, prir t prcessing yur distributin. Yu have at least 30 days after receiving this ntice t decide whether yu want t directly rll ver yur distributin r have it paid t yu. Hwever, if yu make a decisin in less than 30 days and return the cmpleted withdrawal frm t us, we will cnsider that yu have waived the 30-day-waiting perid. We prcess allwable withdrawal requests as sn as practical after we receive yur cmpleted request frm. We will cntact yu if the requested withdrawal is nt allwable r if the frm is incmplete. If yur withdrawal request is nt received and prcessed within 180 days f the date stamped n the tp f the withdrawal frm, yu must request anther withdrawal frm and begin the prcess again. Please call us at 1-800-279-4030 if yu have any questins. Summary This ntice explains hw yu can cntinue t defer federal incme tax n yur retirement savings in yur WEA Member Benefits TSA and cntains imprtant infrmatin yu will need befre yu decide hw t receive yur TSA benefits. This infrmatin is being prvided t yu because all r part f the payment that yu will sn receive frm the TSA may be eligible fr rllver t an IRA r an eligible emplyer plan. A rllver is a payment f all r part f yur benefit t anther plan r IRA that allws yu t cntinue t pstpne taxatin f that benefit until it is paid t yu. A distributin frm yur TSA accunt that is eligible fr a rllver may be paid t yu as cash r can be directly rlled int anther tax-favred plan. Rth TSA distributins can be rlled ver t anther Rth TSA, Rth 401(k), r Rth IRA that will prvide separate accunting fr cntributins and earnings n thse cntributins. Befre-tax TSA cntributins can be rlled ver t a traditinal IRA, SEP IRA, 457(b) plan (gvernmental deferred cmpensatin nly), 401(a) plan, including a prfit sharing plan r a stck bnus plan, a mney purchase plan, r a defined benefit plan; 401(k) plan, r t anther befre-tax 403(b) TSA plan; but nt t a Rth IRA, Rth TSA, Rth 401(k), a SIMPLE IRA, r a Cverdell Educatin Savings Accunt (frmerly knwn as an educatin IRA). All r a prtin f any rllver paid t yu as cash may be subject t 20% federal withhlding. An eligible emplyer plan is nt legally required t accept a rllver. Befre yu decide t rll ver yur distributin t anther emplyer plan, yu shuld find ut whether the plan accepts rllvers and, if s, the types f distributins it accepts as a rllver. Yu shuld als find ut abut any dcuments that yu are required t cmplete befre the receiving plan will accept a rllver. If an emplyer plan accepts yur rllver, the plan may restrict subsequent distributins f the rllver amunt. A subsequent distributin frm the plan that accepts yur rllver may als be subject t different tax treatment than distributins frm yur TSA. Check with the administratr f the plan that is t receive yur rllver prir t making the rllver. 1 TSA 2309-280-0714
BEFORE-TAX ELECTIVE OR NONELECTIVE If yu chse a direct rllver f befre-tax elective and/r nn-elective accunt balances: Yur distributin will nt be taxed in the current year, and n incme tax will be withheld. Yur distributin will be paid directly t yur traditinal IRA r, if yu chse, t anther emplyer s plan that accepts yur rllver. Yur funds will be taxed later when yu take distributins frm the traditinal IRA r the emplyer s plan. Depending upn the type f plan, the later distributin may be subject t different tax treatment than it wuld be if yu had received a taxable distributin frm yur TSA accunt. (Example: Traditinal IRAs may be subject t early distributin penalties prir t age 59½ even when yu have separated frm service with yur emplyer during r after the year yu reach age 55.) If yu chse t have yur distributin paid t yu as cash with the ptin f a 60-day rllver: Yu will receive nly 80% f the distributin because we are required t withhld 20% f the distributin and send it t the Internal Revenue Service (IRS) as incme tax withhlding t be credited against yur taxes. Yur distributin will be taxed in the current year unless yu rll it ver. If yu receive the distributin befre age 59½, yu als may have t pay an additinal 10% federal penalty and a 3.3% state f Wiscnsin penalty. Yu can rll ver all r part f the distributin t yur traditinal IRA r t anther emplyer s plan that accepts yur rllver within 60 days after yu receive the distributin. The amunt rlled ver will nt be taxed until yu take it ut f the traditinal IRA r emplyer s plan. If yu want t rll ver 100% f the distributin t a traditinal IRA r an emplyer s plan, yu must find ther mney t replace the 20% that was withheld. If yu rll ver nly the 80% that yu received, yu will be taxed n the 20% that was withheld and that is nt rlled ver. AFTER-TAX (ROTH) TSA If yu chse a direct rllver f after-tax (Rth) TSA accunt balances: Yur distributin will nt be taxed in the current year, and n incme tax will be withheld. If yur rllver is a qualified distributin, the entire amunt is cnsidered basis, which is the amunt that is nt subject t taxes. If yur ttal r partial distributin is nt qualified, we will reprt cntributins and earnings prprtinately t the recipient plan. Yur distributin will be paid directly t yur Rth IRA r t anther Rth TSA r Rth 401(k) plan that accepts yur rllver and agrees t separately accunt fr the amunt nt includible in incme. Yur earnings may be taxed later if yu take a nnqualified distributin frm the recipient retirement plan. 2 TSA 2309-280-0714
If rllver is t a Rth TSA r Rth 401(k), the new five-year taxable perid becmes the earlier f the distributing plan r recipient plan. If rllver is t a Rth IRA, the new five-year taxable perid takes n the recipient Rth IRA s qualifying perid. If yu chse t have yur nnqualified after-tax distributin paid t yu as cash with the ptin f a 60-day rllver: T anther Rth TSA r t a Rth 401(k): Only taxable earnings can be rlled ver. Distributins that include nn-taxable cntributins must be accmplished thrugh a direct rllver. We are required t withhld 20% f the distributed earnings and send it t the IRS t be credited against yur taxes. Yu can rll ver all r part f the taxable earnings t a Rth 401(k) r t anther emplyer s Rth TSA plan that accepts yur rllver within 60 days after yu receive the distributin and that will prvide separate accunting fr cntributins and earnings n thse cntributins. The amunt rlled ver may nt be taxed unless yu take it ut f the recipient retirement plan as a nnqualified distributin. Unless yu rll it ver, the taxable amunt f yur distributin will be taxed in the current year, and yu may have t pay an additinal 10% federal and 3.3% state f Wiscnsin penalty. If yu want t rll ver 100% f the taxable earnings t anther plan, yu must find ther mney t replace the federal taxes that were withheld n the taxable earnings. If yu rll ver nly a prtin f taxable earnings that yu received, yu will be taxed n the amunt f taxable earnings that was nt rlled ver. New five-year taxable perid becmes that f the recipient plan. T a Rth IRA: All r part f yur accunt can be rlled t a Rth IRA. If nly a prtin is rlled ver, it is treated as cnsisting first f taxable incme. We are required t withhld 20% n the distributed earnings and send it t the IRS t be credited against yur taxes. If yu want t rll ver 100% f the distributin t a Rth IRA, yu must find ther mney t replace the 20% that was withheld. If yu rll ver nly the 80% that yu received, yu will be taxed n the 20% that was withheld and nt rlled ver. Unless yu rll it ver, the taxable amunt f yur distributin will be taxed in the current year, and yu may have t pay an additinal 10% federal and 3.3% state f Wiscnsin penalty. New five-year perid takes n the Rth IRA qualifying perid. 3 TSA 2309-280-0714
If yu chse t have yur qualified distributin paid t yu as cash with the ptin f a 60-day rllver: Qualified distributins are nt taxable and will be recrded as basis by the recipient plan. If rlling t a Rth TSA r Rth 401(k), new five-year taxable perid becmes the earlier f the distributing plan r recipient plan. If rlling t a Rth IRA, new five-year perid takes n the Rth IRA qualifying perid. Mre Infrmatin I. Distributins That Can and Cannt Be Rlled Over... 3 II. Rllvers f Accunt Balances... 4 5 III. Distributin Paid t Yu... 5 6 IV. Surviving Spuses, Alternate Payees, and Other Beneficiaries... 6 V. Hw T Obtain Additinal Infrmatin... 6 I. Distributins That Can and Cannt Be Rlled Over Distributins frm yur TSA accunt may be eligible rllver distributins. This means that they can be rlled ver t certain plans that accept rllvers as explained abve. We can tell yu what prtin f yur distributin is an eligible rllver distributin if yu cntact us prir t requesting r receiving a plan distributin. In additin t the previusly defined restrictins, the fllwing distributins cannt be rlled ver: Distributins Spread Over Lng Perids: Yu cannt rll ver a distributin if it is part f a series f equal (r almst equal) distributins that are made at least nce a year and that will last fr: (1) yur lifetime (r yur life expectancy), (2) yur lifetime and yur beneficiary s lifetime (r jint life expectancies), r (3) a perid f ten years r mre. Required Minimum Distributins: Beginning in the year yu reach age 70½ (if yu have retired), a certain prtin f yur distributin cannt be rlled ver because it is a required minimum distributin (RMD) and must be paid t yu. After-tax (Rth) TSA accunts can avid RMDs by rlling their accunt t a Rth IRA. Hardship Withdrawals: Yu cannt rll ver a hardship withdrawal. The IRS standard f hardship is that a withdrawal will be n accunt f hardship if the withdrawal is necessary in light f immediate and heavy financial needs f the emplyee r their beneficiary that cannt be satisfied frm ther reasnably available resurces. Crrective Distributins: A distributin that is made because legal limits n certain cntributins were exceeded cannt be rlled ver. 4 TSA 2309-280-0714
II. Rllvers f Accunt Balances Direct Rllver Yu can chse a direct rllver f all r any prtin f yur distributin that is an eligible rllver distributin as previusly described. In a direct rllver, the eligible rllver distributin is paid directly frm yur TSA accunt t the apprpriate type f IRA Rth r traditinal r an emplyer plan that accepts rllvers. If the emplyer plan accepts yur rllver, the plan may prvide restrictins n circumstances under which yu may later receive a distributin f the rllver amunt. If yu chse a direct rllver, yu are nt taxed n the distributin. Subsequent befre-tax distributins, and the earnings prtin f any nnqualified Rth distributin, taken later frm the IRA r the emplyer s plan may be subject t tax. The tax treatment f any payment frm a Rth r a traditinal IRA r anther eligible emplyer plan receiving yur direct rllver might be different than if yu received yur benefit in a taxable distributin directly frm yur TSA. Direct Rllver t an IRA: If eligible, yu can pen the apprpriate type f IRA Rth r traditinal t receive the direct rllver. If yu chse t have yur distributin paid directly t an IRA (Rth r traditinal), cntact an IRA spnsr (usually a financial institutin) t find ut hw t have yur distributin made in a direct rllver t an IRA at that institutin. If yu are unsure f hw t invest yur mney, yu can temprarily establish an IRA t receive the distributin. Hwever, in chsing an IRA, yu may wish t cnsider whether the IRA yu chse will allw yu t mve all r a part f yur distributin t anther IRA at a later date withut penalties r ther limitatins. See IRS Publicatin 590, Individual Retirement Arrangements, fr mre infrmatin n IRAs (including limits n hw ften yu can rll ver between IRAs). Direct Rllver t a Plan: If yu are emplyed by a new emplyer that has a plan and yu want a direct rllver t that plan, ask the administratr f that plan whether it will accept yur rllver. If yur new plan des nt accept a rllver, yu can chse a direct rllver t the apprpriate type f IRA Rth r traditinal. Rth TSA distributins rlled ver int anther Rth TSA r Rth 401(k) accunt can be accmplished thrugh a direct rllver f the entire distributin (a 60-day rllver t anther Rth TSA r Rth 401(k) accunt is nt available fr nnqualified tax-free amunts). If the amunt rlled ver is a qualified distributin, the entire amunt f the rllver is allcated t the investment in the cntract (basis). As a result, any subsequent distributin wuld be tax-free. Befre-tax TSA amunts may als be rlled ver t the varius retirement plans explained n page 1. Direct Rllver f a Series f Distributins: If yu receive eligible rllver distributins that are paid in a series fr less than 10 years, yur chice t make r nt make a direct rllver fr a distributin will apply t all later distributins in a series until yu change yur electin. Yu are free t change yur electin fr any later distributins in the series. III. Distributin Paid t Yu If yu have a distributin paid t yu, the taxable prtin is subject t 20% incme tax withhlding. Tax-deferred and the earnings prtin f nnqualified distributins are taxed in the year yu receive it unless, within 60 days, yu rll it ver t the apprpriate type f IRA r anther emplyer plan that accepts rllvers. If yu d nt rll it ver, special tax rules may apply. 5 TSA 2309-280-0714
Incme Tax Withhlding Mandatry Withhlding: If any prtin f the cash distributin t yu is an eligible rllver distributin and yu d nt elect t make a direct rllver, we are required by law t withhld 20% f the taxable amunt. This amunt is sent t the IRS as federal incme tax withhlding. Fr example: if yur eligible rllver distributin is $10,000, (nnqualified after-tax Rth TSA amunts are assumed t have earnings f $10,000 fr purpses f this example) nly $8,000 will be paid t yu because we must withhld $2,000 as federal incme tax. When yu prepare yur incme tax return fr the year, unless yu make a rllver within 60 days, yu will reprt the full $10,000 as a distributin frm yur TSA accunt. Yu will reprt the $2,000 as tax withheld, and it will be credited against any incme tax yu we fr the year. In a Rth TSA, nly the earnings prtin f a nnqualified distributin wuld be subject t 20% withhlding. Qualified Rth TSA distributins are nt subject t withhlding. Vluntary Withhlding: If any prtin f yur distributin is nt an eligible rllver distributin but is taxable, the mandatry withhlding rules described abve d nt apply. In this case, yu may elect nt t have withhlding apply t that prtin. If yu d nthing, 10% will be taken ut f this prtin f yur payment fr federal incme tax withhlding. T elect ut f withhlding, indicate such electin n the relevant WEA Tax Sheltered Annuity Trust withdrawal frm. Sixty-Day Rllver Optin (Indirect Rllver): If yu have an eligible rllver distributin paid t yu, yu can still decide t rll ver all r part f it t the apprpriate IRA Rth r traditinal r t anther emplyer s plan that accepts rllvers. An indirect rllver f a nnqualified Rth TSA t anther Rth TSA r a Rth 401(k) can nly cnsist f taxable earnings. If yu decide t rll ver, yu must cmplete the rllver within 60 days after yu receive the distributin. The prtin f yur distributin that is rlled ver will nt be taxed until yu take it ut f the recipient plan, if taxes apply. If yu rll ver all r part f yur Rth TSA t a Rth IRA, the prtin rlled ver, if nnqualified, is treated as cnsisting first f taxable incme, and then investment. If qualified, it is cnsidered basis. Yu can rll ver up t 100% f the eligible rllver distributin, including an amunt equal t the federal tax that was withheld. If yu chse t rll ver 100%, yu must find ther mney within the 60-day perid t cntribute t the recipient IRA r emplyer s plan t replace any amunt f federal taxes withheld. If yu chse t rll ver nly the amunt yu received, yu may be taxed n the amunt withheld. Example: Yur eligible rllver distributin is $10,000, and yu chse t have it paid t yu. Yu will receive $8,000, and $2,000 will be sent t the IRS as incme tax withhlding (nnqualified aftertax Rth TSA amunts are assumed t have earnings f $10,000 fr purpses f this example). Within 60 days after receiving the $8,000, yu may rll ver the entire $10,000 t the apprpriate type f plan indicated n page 1. T d this, yu rll ver the $8,000 yu received frm yur TSA accunt, and yu will have t find $2,000 frm ther surces (yur savings, a lan, etc.). The entire $10,000 is nt taxed until yu take it ut f the recipient plan, if applicable. If, n the ther hand, yu rll ver nly $8,000, the $2,000 yu did nt rll ver is taxed in the year it was withheld. Regardless f which f these tw scenaris yu chse, yu will receive credit fr the $2,000 withheld when yu file yur incme tax return. Qualified Rth TSA distributins are nt taxable. 6 TSA 2309-280-0714
Additinal Taxes if Yu Are Under Age 59½: If yu receive a distributin befre yu reach age 59½ and yu d nt rll it ver, in additin t the applicable federal and state incme tax, yu may have t pay a federal penalty equal t 10% f the taxable amunt. (Wiscnsin residents may be subject t an additinal 3.3% penalty). The additinal penalties d nt apply t yur distributin if it is: (1) paid t yu because yu separate frm service with yur emplyer during r after the year yu reach age 55 (nt applicable t Rth TSAs), (2) a Rth TSA distributin that is qualified r the prtin that cnsists f cntributins, (3) paid because yu retire due t ttal and permanent disability (Rth TSAs require accunts t have been held fr five years), (4) paid t yu as equal (r almst equal) distributins ver yur life r life expectancy (r yur and yur beneficiary s lives r life expectancies), (5) a payment that des nt exceed the amunt f yur deductible medical expenses, (6) payments that are paid directly t the gvernment t satisfy a federal tax levy, r (7) payments that are paid t an alternate payee under a qualified dmestic relatins rder. See IRS Frm 5329 fr mre infrmatin n the additinal 10% federal penalty. IV. Surviving Spuses, Alternate Payees, and Other Beneficiaries In general, mst rules summarized abve that apply t distributins t emplyees als apply t distributins t surviving spuses f emplyees, nn-spusal beneficiaries, and t spuses r frmer spuses wh are alternate payees. Yu are an alternate payee if yur interest in a TSA accunt results frm a qualified dmestic relatins rder, which is an rder issued by a curt usually in cnnectin with a divrce r legal separatin. Sme f the rules summarized abve als apply t a deceased emplyee s beneficiary wh is nt their spuse. Hwever, there are sme exceptins fr distributins t surviving spuses, alternate payees, and ther beneficiaries that shuld be mentined. If yu are a surviving spuse r alternate payee, yu have the same chices as an emplyee. Yu may chse t have an eligible rllver distributin paid in a direct rllver t the apprpriate IRA Rth r Traditinal, t anther emplyer plan that accepts rllvers, r t yu. If yu have the distributin paid t yu, yu have the ptin t rll it ver within 60 days refer t Sectin III. If yu are a beneficiary ther than the surviving spuse, yu may rll ver yur inherited TSA accunt t an inherited IRA nly. If yu are an alternate payee, yu cannt chse a direct rllver and yu cannt rllver the distributin yurself. If yu are a beneficiary ther than a surviving spuse r an alternate payee, such as a child r dmestic partner, yu may chse t have a payment that can be rlled ver, paid in a direct rllver t a Traditinal IRA, r paid t yu. Yu may nt rll ver the payment t yurself r t an eligible emplyer plan. The IRA accepting the transfer is treated like a nn-spuse inherited IRA, under which benefits must be distributed in accrdance with the applicable required minimum distributin rules. In general, distributins frm the rllver IRA must either be paid t yu in full within five years f the emplyee s death r must cmmence within twelve mnths f the emplyee s death ver yur life expectancy. The benefits cannt be rlled ver again frm the rllver IRA. If yu are a surviving spuse, an alternate payee, r anther beneficiary f a befre-tax TSA r qualified Rth TSA, the distributin paid t yu is nt subject t the additinal 10% penalty described in Sectin III, even if yu are yunger than age 59½. If the distributin is rlled ver t an IRA Rth r Traditinal r anther emplyer plan, the additinal 10% penalty may apply. The 10% penalty may als apply t nn-qualified distributins whether r nt it is rlled ver. 7 TSA 2309-280-0714
V. Hw t Obtain Additinal Infrmatin This ntice summarizes nly the federal (nt state r lcal) tax rules that might apply t yur distributin. The rules described abve are cmplex and cntain many cnditins and exceptins that are nt included in this ntice. Therefre, yu may want t cnsult with the plan administratr r a prfessinal tax advisr befre yu take a distributin f yur benefits frm yur TSA accunt. Als, yu can find mre specific infrmatin n the tax treatment f distributins frm TSA plans in IRS Publicatin 571, Tax- Sheltered Annuity Prgrams fr Emplyees f Public Schls and Certain Tax-Exempt Organizatins; IRS Publicatin 575, Pensin and Annuity Incme; and IRS Publicatin 590, Individual Retirement Arrangements. These publicatins are available frm yur lcal IRS ffice, n the IRS s Internet Web site at www.irs.gv, r by calling 1-800-TAX-FORM. 8 TSA 2309-280-0714