What are my Annuity Savings Account payment options?
Your options for receiving your Annuity Savings Account depend on whether you are eligible to retire or are withdrawing your ASA after leaving covered employment before retirement. If you are considering withdrawing your ASA, be sure to read the previous question, May I Take My Annuity Savings Account If I Leave?
Choice Number 1 – This choice is available only at retirement. The total amount of your Annuity Savings Account will be paid out as a lifetime monthly benefit.
If you elect Choice 1, any non-taxable basis you have will be recovered on a pro-rata basis over a predetermined number of payments based on your age at the time benefits start. The balance of each benefit payment will be fully taxable. Unless you elect otherwise on your federal tax withholding form, PERF is required to withhold in accordance with IRS guidelines.
The following choices are available when withdrawing your ASA after leaving employment or at retirement.
Choice Number 2A - The total amount in your Annuity Savings Account (less the mandatory withholding for federal income tax) will be paid directly to you.
If you elect Choice 2A, PERF is required to withhold 20 percent of the taxable portion. The taxable portion of the Annuity Savings Account consists of:
- all 3 percent contributions paid by the employer; and
- all earnings.
You will have to pay state and federal income tax on this taxable portion. You may still rollover the taxable portion into a Qualified Retirement Plan or IRA. For the tax consequences of making a rollover yourself, please refer to the IRS Special Tax Notice in your Retirement Application or Claim for Refund of Contributions.
Choice Number 2B - The taxable portion of your Annuity Savings Account will be paid in the form of a Direct Rollover to an Individual Retirement Account (IRA) or a Qualified Retirement Plan allowed to accept the rollover on your behalf. The non-taxable portion will be paid directly to you.
If you elect Choice 2B, the taxable portion of your payment will not be taxed in your current year and no income tax will be withheld. You will be taxed later when you receive a distribution from the IRA or Qualified Retirement Plan.
Choice Number 2C - Part of the taxable portion of your Annuity Savings Account will be paid in the form of a Direct Rollover to an IRA or a Qualified Retirement Plan allowed to accept the rollover on your behalf. The part of the taxable portion of the distribution which is not directly rolled over (less the mandatory withholding for federal income tax) will be paid directly to you, and the non-taxable portion will be paid directly to you. (You may select this choice only if you want a partial rollover amount of at least $500.)
If you elect Choice 2C, The taxable portion of the Annuity Savings Account consists of:
- all 3 percent contributions paid by the employer; and
- all earnings.
For any part of the eligible rollover distribution that is not directly rolled over, PERF is required by law to withhold 20 percent for federal income taxes. You will have to pay federal and state income taxes on this taxable portion. You will not be taxed in the current year and no income tax will be withheld on the Direct Rollover amount. You will be taxed on that amount when you receive a distribution from the IRA or Qualified Retirement Plan.
Choice Number 3 - This choice is available only to those who had an ASA balance as of Dec. 31, 1986. You will receive payment of the amount equal to your tax “basis” in your Annuity Savings Account balance as it existed on December 31, 1986 and you will receive the balance of the account as a monthly benefit.
If you elect Choice 3, the income tax consequences will be determined as follows:
- In accordance with a letter ruling received from the IRS, the “basis,” that existed on Dec. 31, 1986 will be recovered tax-free.
- Any “basis” after Dec. 31, 1986 will be recovered on a pro-rata basis over a pre-determined number of payments based on your age at the time benefits start.
- The remainder of your Annuity Savings Account and your pension benefits will be fully taxable in the year received.
