Leaving SURS – Traditional and Portable Plans

Although you may intend to stay with a SURS-covered employer until retirement, the time may come when your personal situation prevents you from doing so.  The following are your options should you leave the system entirely:

Leave funds on file:  You may elect to leave your funds on file. You may elect to take a distribution at a later date; however a distribution must be made to you by the April 1st following the year you reach the Required Minimum Distribution (RMD) age* if you are not employed with SURS or a State of Illinois reciprocal system at that time.

Apply for a retirement benefit:  If you meet the age and service requirements for a retirement benefit, you may apply for retirement benefits upon termination of employment.  If you have not met the age requirement, you may leave your funds on file until you become eligible for retirement benefits. You must begin the annuity by the April 1st following the year you reach the Required Minimum Distribution (RMD) age* if you are not employed with SURS or a State of Illinois reciprocal system at that time.

RMD age is as follows: 70.5 for members born before July 1, 1949; 72 for members born July 1, 1949 through December 31, 1950; 73 for members born January 1, 1951 through December 31, 1958 (proposed IRS regulations extend this RMD age for those born during 1959); and 75 for members born on or after January 1, 1960. RMD rules apply to a lump-sum distribution and/or a monthly benefit, whichever the member qualifies for or elects. SURS contacts members as they approach RMD age so that the proper paperwork can be completed.

Receive a separation refund: You may receive a one-time lump sum distribution. No partial distributions are allowed.  You may only receive one refund per academic year.  By accepting a separation refund, your claim to future benefits will be forfeited.

You may elect to receive your refund as a lump sum paid directly to you.

• If your refund is less than $200, SURS is not required to withhold any federal income tax.  However, if you wish to have federal income tax withheld, SURS will withhold a minimum of 5%, or a higher percentage of your choice.
• If your refund is $200 or more, SURS is required by law to withhold a minimum of 20% for federal income tax.
• Your refund is subject to an IRS 10% early withdrawal penalty unless:
  • You are over age 59 ½;
  • You terminated employment after age 55;
  • You have medical expenses large enough to be deducted on Form1040, Schedule A; or
  • You are a public safety employee who terminated employment after age 50.

Note: The 10% penalty is not withheld by SURS.  It is calculated on IRS Form 5329 to be filed with your federal tax return for the tax year in which your refund is paid. 

You may defer taxation by rolling the taxable portion of your refund directly from SURS to an IRA, a qualified 401(a) retirement plan, a 403(b) plan, or a Governmental 457 plan.  If you arrange a trustee-to-trustee transfer, there will be no federal income tax withheld.   Most rollovers are not subject to federal income tax. However, they are subject to taxation, according to IRS regulations, at the time of withdrawal. Rollovers to Roth IRAs are taxable at the time of the rollover.

You should consult a tax advisor with questions regarding a rollover or taxation of your separation refund.

You will receive a 1099-R to file with your federal tax return the January following the tax year in which your refund is paid. Your refund is not subject to State of Illinois income tax.