SURS Special Tax Notice – Governmental 401(a) Plan

Special Tax Notice Regarding Your Rollover Options Under A Governmental 401(a) Plan

You are receiving this notice because you are eligible to receive a payment from the State Universities Retirement System Defined Benefit Plan or Retirement Savings Plan (collectively, the “Plan”) that you can transfer (roll over) to an IRA or an employer plan. This notice is intended to help you decide whether roll over the payment (or some portion of it). If you receive or access this notice electronically, you may request a paper copy of this notice from the plan at no charge to you.

General Information About Rollovers

What can I do with an amount that is eligible for rollover?
How can a payment affect my taxes?
How can a rollover affect my taxes?
What types of retirement accounts and plans may accept my rollover?
How do I do a rollover?
How much may I roll over?
If I don’t do a rollover, will I have to pay the 10% additional tax on distributions before age 59½?
If I do a rollover to an IRA, will the 10% additional tax apply to a later distribution from the IRA before age 59½?
Will I owe state income taxes?

Special Rules and Options

If your payment includes after-tax contributions
If you miss the 60-day rollover deadline
If you receive a payment and you were born on or before January 1, 1936
If your payment is from a governmental section 457(b) plan
If you are an eligible retired public safety officer and your payment is used
to pay for health coverage or qualified long-term care insurance
If you roll over your payment to a SIMPLE IRA
If you roll over your payment to a Roth IRA
If you aren’t a Plan member
If you are a nonresident alien
Other special rules

For More Information

General Information About Rollovers

This notice describes the rollover rules that apply to payments from the Plan that are not from a designated Roth account (a type of account in some employer plans that is subject to special tax rules). Rules that apply to most payments from a plan are described in this “General Information About Rollovers” section. Special rules that only apply in certain circumstances are described in the “Special Rules and Options” section, including rules if you have after-tax contributions or your benefit doesn’t exceed $7,000.

What can I do with an amount that is eligible for rollover?

When an amount payable (that is, an amount you are eligible to take as a payment from the Plan) is eligible for rollover, you generally may choose some combination of the following:

Leave it in the Plan, that is, do not take the payment,
Roll it over into another employer plan,
Roll it over into an IRA, or
Take it, don’t roll it over, and pay any required taxes.

Whether these options are available to you depends on your circumstances and the terms of the Plan. For example, you may be required to take a payment (and not roll it over) based on your age or if your benefit is below a certain threshold.

How can a payment affect my taxes?

If you don’t do a rollover, you will be taxed on a payment from the Plan, and, if you are under age 59½, you will also have to pay a 10% additional tax (unless an exception applies).

How can a rollover affect my taxes?

If you do a rollover, you won’t have to pay tax until you receive payments later.

What types of retirement accounts and plans may accept my rollover?

You may roll over the payment to either an IRA (an individual retirement account or individual retirement annuity) or an employer plan (a tax-qualified plan, section 403(b) plan, or governmental section 457(b) plan) that will accept the rollover. The rules of the IRA or employer plan that holds the rollover will determine your investment options, fees, and rights to payment from the IRA or employer plan (for example, IRA’s aren’t subject to spousal consent rules, and IRAs may not provide loans). Further, the amount rolled over will become subject to the tax rules that apply to the IRA or employer plan. For additional information on IRAs, see IRS Publication 590-A,

Contributions to Individual Retirement Arrangements (IRAs), and IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

How do I do a rollover?

There are two ways to do a rollover. You can do either a direct rollover or a 60-day rollover.

If you do a direct rollover, the Plan will make the payment directly to your IRA or an employer plan. You should contact the IRA provider or the administrator of the employer plan for information on how to do a direct rollover.

If you do a 60-day rollover, you will receive a payment from the Plan and then make a deposit into an IRA or eligible employer plan that will accept it. Generally, you will have 60 days after you receive the payment to make the deposit. If you don’t do a direct rollover, the Plan is required to withhold 20% of the payment for federal income taxes (up to the amount of cash and property received other than employer stock). This means that, in order to roll over the entire payment in a 60-day rollover, you must use other funds to make up for amount withheld. If you don’t roll over the entire amount of the payment, the portion not rolled over will be taxed and will be subject to the 10% additional income tax on early distributions if you are under age 59½ (unless an exception applies).

How much may I roll over?

If you wish to do a rollover, you may roll over all or part of the amount eligible for rollover. Any payment from the Plan is eligible for rollover, except:

Certain payments spread over a period of at least 10 years or over your life or life expectancy (or the joint lives or joint life expectancies of you and your beneficiary). This means that your lifetime monthly benefits are not eligible for rollover.
Required minimum distributions after age 70½ (if you were born before July 1, 1949), age 72 (if you were born after June 30, 1949, and before January 1, 1951), age 73 (if you were born after December 31, 1950, and before January 1, 1960), or age 75 (if you were born after December 31, 1959), or after death.
Corrective distributions of contributions that exceed tax law limitations.

The Plan administrator or the payor can tell you what portion of a payment is eligible for rollover.

If I don’t do a rollover, will I have to pay the 10% additional tax on distributions before age 59½?

If you are under age 59½, you will have to pay the 10% additional tax on early distributions for any payment from the Plan (including amounts withheld for income tax) that you don’t roll over, unless one of the exceptions listed below applies. This tax applies to the part of the distribution that you must include in income and is in addition to the regular income tax on the payment not rolled over.

The 10% additional tax doesn’t apply to the following payments from the Plan:

Payments made after you separate from service if you will be at least age 55 in the year of the separation.
Payments that start after you separate from service if paid at least annually in equal or close to equal amounts over your life or life expectancy (or the joint lives or joint life expectancies of you and your beneficiary).
Payments from a governmental plan made after you separate from service as a qualified public safety employee and, in the year of separation, have reached age 50 or 25 years of service under the Plan;.
Payments made due to disability.
Payments after you receive a certification from a physician that you have a
terminal illness (terminal illness distributions).
Payments after your death.
Corrective distributions of contributions that exceed tax law limitations.
Cost of life insurance paid by the Plan.
Payments made directly to the government to satisfy a federal tax levy.
Payments made under a qualified Illinois domestic relations order (QILDRO).
Payments of up to $5,000 made to you if the payment is a qualified birth or adoption distribution.
Payments up to the amount of your deductible medical expenses (without regard to whether you itemize deductions for the taxable year).
Certain payments made while you are on active duty if you were a member of a reserve component called to duty after Sept. 11, 2001, for more than 179 days.
Payments of up to $22,000 made to you if the payment is a qualified disaster recovery distribution.
Phased retirement payments made to federal employees.
Payments of up to $10,000 made to you within one year of the date on which you are a victim of domestic abuse by a spouse or domestic partner.
Payments of up to $1,000 per year if the payment is an emergency personal expense distribution.

For more information about the 10% additional tax and the exceptions to the 10% additional tax, see IRS Publication 575, Pension and Annuity Income, under the heading Tax on Early Distributions. For information on how to claim an exception, see the Instructions for IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.

If I do a rollover to an IRA, will the 10% additional tax apply to distributions from the IRA before age 59½?

If you receive a payment from an IRA when you are under age 59½, you will have to pay the 10% additional tax on early distributions on the part of the payment that you must include as income, unless an exception applies. In general, the exceptions to the 10% additional income tax for early distributions from an IRA are the same as the exceptions listed above for early distributions from the Plan. However, there are a few differences for payments from an IRA, including:

The exception for payments made after you separate from service if you will be at least age 55 in the year of the separation (or age 50 or have at least 25 years of service under the Plan for qualified public safety employees) doesn’t apply to payments from an IRA.
The exception for qualified Illinois domestic relations orders (QILDROs) doesn’t apply to an IRA (although a special rule applies under which, as part of a divorce or separation agreement, a tax-free transfer may be made directly to an IRA of a spouse or former spouse).
The exception for substantially equal periodic payments from the Plan also applies without regard to whether you have had a separation from service.

Also, there are exceptions to the 10% additional tax that do not apply to payments from the Plan but that do apply to payments from an IRA, including:

Payments for qualified higher education expenses;
Payments up to $10,000 used in a qualified first-time home purchase; and
Payments for health insurance premiums after you have received unemployment compensation for 12 consecutive weeks (or would have been eligible to receive unemployment compensation but for self-employed status), and
Payments of net income attributable to an excess IRA contribution made in a calendar year where such amounts are distributed by the tax return deadline for the year (including extensions) and no deduction is allowed for the excess contribution.

Will I owe State income taxes?

This notice does not describe any State or local income tax rules (including withholding rules).

Special Rules and Options

If your payment includes after-tax contributions

After-tax contributions included in a payment are not taxed. If you receive a partial payment of your total benefit, an allocable portion of your after-tax contributions is included in the payment, so you cannot take a payment of only after-tax contributions. However, if you have pre-1987 after-tax contributions maintained in a separate account, a special rule may apply to determine whether the after-tax contributions are included in the payment. In addition, special rules apply when you do a rollover, as described below.

You may roll over to an IRA a payment that includes after-tax contributions through either a direct rollover or a 60-day rollover. You must keep track of the aggregate amount of the after-tax contributions in all of your IRAs (in order to determine your taxable income for later payments from the IRAs). If you do a direct rollover of only a portion of the amount paid from the Plan and at the same time the rest is paid to you, the portion rolled over consists first of the amount that would be taxable if not rolled over.

For example, assume you are receiving a distribution of $12,000, of which $2,000 is after-tax contributions. In this case, if you directly roll over $10,000 to an IRA that is not a Roth IRA, no amount is taxable because the $2,000 amount not directly rolled over is treated as being after-tax contributions. If you do a direct rollover of the entire amount paid from the Plan to two or more destinations at the same time, you can choose which destination receives the after-tax contributions.

Similarly, if you do a 60-day rollover to an IRA of only a portion of a payment made to you, the portion rolled over consists first of the amount that would be taxable if not rolled over.. For example, assume you are receiving a distribution of $12,000, of which $2,000 is after-tax contributions, and no part of the distribution is directly rolled over. In this case, if you roll over $10,000 to an IRA that isn’t a Roth IRA in a 60-day rollover, no amount is taxable because the $2,000 amount not rolled over is treated as being after-tax contributions.

You may roll over to an employer plan all of a payment that includes after-tax contributions, but only through a direct rollover (and only if the receiving plan separately accounts for after-tax contributions and isn’t a governmental section 457(b) plan). You can do a 60-day rollover to an employer plan of part of a payment that includes after-tax contributions, but only up to the amount of the payment that would be taxable if not rolled over.

If you miss the 60-day rollover deadline

Generally, the 60-day rollover deadline can’t be extended. However, the IRS has authority to waive the deadline under certain extraordinary circumstances, such as when external events prevented you from completing the rollover by the 60-day rollover deadline. Under certain circumstances, you may claim eligibility for a waiver of the 60-day rollover deadline by making a written self-certification. Otherwise, to apply for a waiver from the IRS, you must file a private letter ruling request with the IRS. Private letter ruling requests require the payment of a non-refundable user fee. For more information, see IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), under the heading Rollovers.

If you receive a payment and you were born on or before January 1, 1936

If you were born on or before January 1, 1936, and receive a lump-sum payment that you don’t roll over, special rules for calculating the amount of the tax on the payment might apply to you. For more information, see IRS Publication 575, Pension and Annuity Income.

If you are an eligible retired public safety officer and your payment is used to pay for health coverage or qualified long-term care insurance

If the Plan is a governmental plan, you retired as a public safety officer, and your retirement was by reason of disability or was after normal retirement age, you can exclude from your taxable income, not to exceed $3,000, the amounts, (1) that were paid by the Plan directly to an insurer of health coverage or qualified long-term care insurance or (2) that were received by you from the Plan and used to pay for premiums to an accident or health plan (or a qualified long-term care insurance contract) that your employer maintains for you, your spouse, or your dependents.. For this purpose, a public safety officer is a law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew.

If you roll over your payment to a SIMPLE IRA

You can only roll over a payment from the Plan to a SIMPLE IRA plan after the end of the 2-year period beginning on the date you first participated in the SIMPLE IRA plan.

If you roll over your payment to a Roth IRA

If you roll over a payment from the Plan to a Roth IRA (which, for purposes of this explanation, includes a Roth SIMPLE IRA), a special rule applies under which the amount of the payment rolled over, reduced by any after-tax amounts, will be taxed. In general, the 10% additional tax on early distributions won’t apply. However, if you take the amount rolled over out of the Roth IRA within the 5-year period that begins on January 1 of the year of the rollover, the 10% additional tax will apply on the amount includible in gross income (unless an exception applies).

If you roll over the payment to a Roth IRA, you won’t have to take required minimum distributions from the Roth IRA during your lifetime. Later payments from the Roth IRA that are qualified distributions won’t be taxed, including earnings after the rollover. A qualified distribution from a Roth IRA is a payment made after you are age 59½ (or after your death or disability, or as a qualified first-time homebuyer distribution of up to $10,000) and after you have had a Roth IRA for at least 5 years. In applying this 5-year rule, you count from January l of the year for which your first contribution was made to a Roth IRA. Payments from the Roth IRA that aren’t qualified distributions will be taxed to the extent of earnings after the rollover, including the 10% additional tax on early distributions (unless an exception applies).

For more information, see IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), and IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

If you aren’t a Plan member

Payments after death of the member. If you receive a distribution after the member’s death that you do not roll over, the distribution will generally be taxed in the same manner described elsewhere in this notice.

However, the 10% additional tax on early distributions and the special rules for public safety officers don’t apply, and the special rule described under the section “If you were born on or before January 1, 1936” applies only if the deceased member was born on or before January 1, 1936.

If you are a surviving spouse. If you receive a payment from the Plan as the surviving spouse of a deceased member, you have the same rollover options that the member would have had, as described elsewhere in this notice. In addition, if you choose to do a rollover to an IRA, you may treat the IRA as your own or as an inherited IRA.

An IRA you treat as your own is treated like any other IRA of yours, so that payments made to you before you are age 59½ will be subject to the 10% additional tax on early distributions (unless an exception applies) and required minimum distributions from your IRA do not have to start until after you are age 70½ (if you were born before July 1, 1949), age 72 (if you were born after June 30, 1949, and before January 1, 1951), age 73 (if you were born after December 31, 1950, and before January 1, 1960), or age 75 (if you were born after December 31, 1959).

If you treat the IRA as an inherited IRA, payments from the IRA will not be subject to the 10% additional tax on early distributions. However, if the member had started taking required minimum distributions from the Plan, required minimum distributions must continue to be made from the inherited IRA. If the member had not started taking required minimum distributions from the Plan, you will not have to start receiving required minimum distributions from the inherited IRA until the year the member would have been age 70½ (if the member was born before July 1, 1949), age 72 (if the member was born after June 30, 1949, and before January 1, 1951), age 73 (if the member was born after December 31, 1950, and before January 1, 1960), or age 75 (if the member was born after December 31, 1959).

If you are a surviving beneficiary other than a spouse. If you receive a payment from the Plan because of the member’s death and you are a designated beneficiary other than a surviving spouse, the only rollover option you have is to do a direct rollover to an inherited IRA. Payments from the inherited IRA won’t be subject to the 10% additional tax on early distributions. You will have to take required minimum distributions from the inherited IRA.

Payments under a qualified Illinois domestic relations order. If you are the spouse or former spouse of the member who receives a payment from the Plan under a qualified Illinois domestic relations order (QILDRO), you generally have the same options the member would have (for example, you may roll over the payment to your own IRA or an eligible employer plan that will accept it). If you are an alternate payee other than the spouse or former spouse of the member, you generally have the same options as a surviving beneficiary other than the spouse, so that the only rollover option you have is to do a direct rollover to an inherited IRA. Payments under the QILDRO will not be subject to the l0% additional income tax on early distributions.

For more information, see IRS Publication 504, Divorced or Separated Individuals.

If you are a nonresident alien

If you are a nonresident alien and you don’t do a direct rollover to a U.S. IRA or U.S. employer plan, instead of withholding 20%, the Plan is generally required to withhold 30% of the payment for federal income taxes. If the amount withheld exceeds the amount of tax you owe (as may happen if you do a 60-day rollover), you may request an income tax refund by filing Form 1040NR, U.S. Nonresident Alien Income Tax Return, and attaching your Form 1042-S. See IRS Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), for claiming that you are entitled to a reduced rate of withholding under an income tax treaty. For more information, see also IRS Publication 519, U.S. Tax Guide for Aliens, and IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

Other special rules

If a payment is one in a series of payments for less than 10 years, your choice whether to make a direct rollover will apply to all later payments in the series (unless you make a different choice for later payments).

If your payments for the year are less than $200, the Plan isn’t required to allow you to do a direct rollover and isn’t required to withhold federal income taxes. However, you may do a 60-day rollover.

Unless you elect otherwise, a mandatory cashout of more than $1,000 will be directly rolled over to an IRA chosen by the Plan administrator or the payor. A mandatory cashout is a payment from a plan to a participant made before age 62 (or normal retirement age, if later) and without consent. Generally, a mandatory cashout is only allowed if the participant’s benefit does not exceed $7,000.

You may have the ability to repay certain distributions from your retirement plan. If you took a qualified reservist distribution, a qualified disaster recovery distribution, a qualified birth or adoption distribution, an emergency personal expense distribution, a domestic abuse victim distribution, or a terminal illness distribution, you generally may repay that distribution to an eligible retirement plan within a certain time period. For more information on repayments of qualified reservist distributions, see IRS Publication 3, Armed Forces’ Tax Guide. For more information on other repayments, see IRS Publication 575, Pension and Annuity Income, or consult a professional tax advisor.

For More Information

You may wish to consult with the Plan administrator or payor, or a professional tax advisor, before taking a payment from the Plan. Also, you can find more detailed information on the federal tax treatment of payments from employer plans in: IRS Publication 575, Pension and Annuity Income; IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs); IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs); and IRS Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). These publications are available from a local IRS office, on the web at www.irs.gov, or by calling 1-800-TAX-FORM.

This notice has been updated to comply with IRS Notice 2026-13.

Revised January 2026