STOP Before You DROP

Leaving DROP soon? If you are under age 59.5 and retiring from DROP there’s a tax rule you should know before rolling over your DROP funds to an IRA.

We’ve been working with FRS members for over 15 years and have found many FRS members fall into this category without knowing all of their options when retiring in the under 59 age group. We’ve seen many FRS members roll over money into an IRA in this age range themselves or under the recommendation of an insurance salesperson without knowing the potential tax consequences. *You may have heard the rule that IRA withdrawals underage 59.5 are subject to an additional 10% federal tax penalty, but that is not the case with ALL retirement accounts. For example, when leaving an employer plan retirement account, such as a 401a like the FRS investment plan, or a deferred compensation plan 457b, you can avoid the tax penalty on these assets if you retire in the year you turn 55 for most individuals, and as young as age 50 for some special risk employees. Many FRS members don’t realize the option to rollover funds internally within the FRS from DROP to the FRS’s investment plan where the FRS offers many different types of investments for members to choose from. We recommend FRS members evaluate ALL of their options before choosing where and how to rollover their hard-earned DROP dollars, and if you are leaving DROP before age 59 and ½, you might want to further explore this option.

If you have questions about leaving DROP or your options, you can schedule a meeting with one of our representatives by clicking the link below to have a complimentary phone or Zoom meeting with a member of our team who will be happy to answer your DROP and retirement questions.

*Information provided should not be considered as tax advice from GWN Securities, Inc. or it’s representatives.  Please consult with your tax professional.

https://www.myfrs.com/FRSPro_Pension_DropRoll.htm