What does it mean to take a refund?

When you take a refund:

• Your membership in the MTRS ends and you give up the service represented by the funds in your account as well as any benefit right based on that service credit.
• You receive a lump-sum payment of your retirement contributions, eligible interest and any payments made to purchase past service or RetirementPlus accelerated contributions—subject to federal tax withholding and penalties, if applicable.
• If you return to Massachusetts public service after receiving a refund, you will be considered a new employee and will be subject to the contribution rate that is in effect at the time of your re-employment—and not your “old,” possibly lower, contribution rate. You will not be entitled to the creditable service you previously accumulated unless you choose to repay your refund, plus interest, according to the rules established by the retirement board of the contributory retirement system of which you become a member. Repayment of your prior refund will not allow you to return to your “old” contribution rate. Additionally, if you return to Massachusetts public service on or after April 2, 2012, you will be subject to the pension reform changes included within Chapter 176 of the Acts of 2011 (which was signed into law on November 18, 2011). These changes include, but are not limited to:
  • A new age factor table that will require you to work longer for the same or a similar benefit that you would receive under today’s table.
  • An increase in the salary average period used in the retirement benefit calculation formula from 3 years to 5 years.
  • An increase in the minimum retirement age from age 55 to 60.

Can I withdraw only a portion of the total in my annuity savings account?

No—we cannot give you a partial refund. We must close out your annuity savings account and pay out the entire balance.

Are there any “hardship” provisions that would allow me to withdraw my money before I terminate my employment?

No—you may only withdraw your account when your Massachusetts public employment is terminated.

What happens if I just leave my funds on account with the MTRS?

If you leave your funds on account…

• You do not need to notify us that this is what you are doing. We will simply keep your funds on account and continue to send you annual statements that show your balance and any activity, such as the addition of interest. Please note, however, that although your statement will reflect interest each year, you may not be eligible to receive all of the accrued interest if and when you later apply for a refund (see below). To comply with IRS rules, however, the MTRS must send you a refund of your account no later than April 1 of the year after the year in which you turn age 72. You will be subject to taxes on the money you receive.

  (Please note: The age requirement was changed from 70-1/2 to 72 under the SECURE Act of 2019, effective January 1, 2020. If you were previously required to begin taking a minimum distribution because you reached the previous age requirement of 70-1/2 prior to January 1, 2020, you must still continue taking that distribution.)

• If you have at least 10 years of creditable service at the time you leave service, you may be eligible to leave your funds on account until you attain a certain age. If, at the time you leave service, you have at least 10 years of creditable service, and your effective membership date is:
  • before April 2, 2012, and you are under age 55, you may leave your funds on account until you attain age 55, at which time you may then apply for a retirement allowance.
  • on or after April 2, 2012, and you are under age 60, you may leave your funds on account until you attain age 60, at which time you may then apply for a retirement allowance.
• If you later return to a position which requires membership in a Massachusetts contributory retirement system, all interest reported on your statements will be credited. Additionally, since you left your money on account, you will be entitled to your “old” contribution rate (the contribution rate in effect at the time you left service) in your new position.
• Under certain circumstances, your account will not earn interest and you will not be entitled to receive all of the accumulated interest. Provided you are not subject to any forfeiture provisions due to criminal conviction, the amount of interest you are entitled to receive is based on three factors: whether your leaving service was voluntary or involuntary, how much creditable service you have, and your effective membership date.

If your effective membership date is on or after January 1, 1984, and you leave (or left) service by:

• RESIGNING VOLUNTARILY, and you have:
  • less than ten years of creditable service, you will receive interest at the rate of 3% on your accumulated total deductions.
  • ten or more years of creditable service, you will receive interest at the regular rate at which it has been credited to your account (in other words, the actual amount of interest you have accrued).
• BEING INVOLUNTARILY TERMINATED, you will receive interest at the regular rate at which it has been credited to your account (in other words, the actual amount of interest you have accrued).

If your effective membership date is before January 1, 1984, you will receive interest at the regular rate at which it has been credited to your account (in other words, the actual amount of interest you have accrued).

In addition to the above situations, and regardless of the amount of creditable service you have, if you apply for a refund more than two years after the date of your termination of service, you are eligible to receive the interest accumulated only for the two years immediately following that date.

According to IRS categories, what type of plan is the Massachusetts Teachers’ Retirement System plan?

Your pension with the MTRS is considered a defined benefit plan that operates as a qualified employer plan under section 401(a) of the Internal Revenue Code. As a defined benefit plan, your retirement is based upon your years of creditable service, age at the time of your retirement and your final salary average. Your benefit is not based solely on your contributions and interest.

What is the difference between after-tax contributions and pre-tax contributions?

For tax purposes, the MTRS identifies the balance in your annuity savings account (the total of your contributions and interest) according to the nontaxable (after-tax) and taxable (pre-tax) portions:

• Nontaxable (after-tax) portion: The nontaxable portion of your balance is equal to your contributions, if any, made prior to January 1, 1988, plus any payments you made to “buy back” previous creditable service. This is also known as your “after-tax” portion because these contributions were deducted from your paycheck after taxes had already been taken out of the entire amount of your paycheck. Because you have already paid taxes on this portion (as well as any payments you made to purchase creditable service), you will not have to pay taxes on this amount again.
• Taxable (pre-tax) portion: The taxable portion of your balance is equal to your contributions made on or after January 1, 1988, plus any interest you receive on your account. This includes any elective pre-tax payroll contributions that you may have paid toward your RetirementPlus accelerated cost. After January 1, 1988, all contributions were deducted from your paycheck before taxes were taken out. Since you have not yet paid taxes on this portion, it is taxable when you receive it in the form of a lump-sum payment or, if you roll over this portion to an eligible retirement plan, when you eventually receive these funds.

Is my refund taxable by the Commonwealth of Massachusetts? By the federal government?

As described above, your refund includes taxable (pre-tax) and nontaxable (after-tax) amounts. At this time, these amounts are subject to tax as follows:

 

	Currently subject to tax by…
Description	Massachusetts	Federal govt.
Contributions made before January 1988 (also known as after-tax contributions)	No	No
Contributions made after January 1988 (also known as pre-tax contributions)	No	Yes
Interest (all interest is pre-tax)	No	Yes

For your reference, the pre-tax and after-tax amounts will be identified on the Form 1099-R that you will receive in January after the calendar year in which you receive your payment; this information will also be provided to the IRS. Again, we will give you more specific information if and when you should request a refund.

How do I know how much the pre-tax and after-tax portions are?

These amounts are broken out in the statement of your annuity savings account that we send to you each year.

Are there any tax penalties for early withdrawal of my funds?

In many cases if you are younger than 59–1/2 years of age, your refund is subject to a 10 percent income tax penalty. We do not withhold this tax penalty from your refund. For example: If you had $20,000 in your account, we would withhold 20% for federal tax withholding, so your actual refund would be $16,000. However, you would still be subject to a 10% early withdrawal penalty of $2,000 from the IRS (10% of $20,000).

For more information about this penalty, contact your local IRS office or a qualified tax advisor.

Is there an option to have funds withheld to cover my tax liabilities?

Yes. The IRS provides the Form W-4R, which you can complete and submit along with your Refund Application to request additional tax withholdings. For more information about the form, please visit www.irs.gov.

What types of retirement plans may I roll over my refund to?

Although federal law allows the MTRS to roll over your funds to various plans, not all of these plans must accept rollovers from the MTRS. Accordingly, you must check with the administrator of the plan into which you want to roll over your payment as to whether that plan will accept a rollover from the MTRS. The plan you select must accept a rollover from a 401(a) plan, which is how the MTRS plan is categorized for IRS purposes.

Please note:

 

You may direct us to pay or roll over all or part of your after-tax and/or pre-tax funds, as indicated, to…	AFTER-tax funds	PRE-tax funds
A traditional IRA This does NOT include a SIMPLE IRA or education IRA.	Yes	Yes
A Roth IRA	Yes	Yes, but you will be taxed in the year in which the rollover is made.
A 401(a) qualified plan (defined contribution)	Yes*	Yes
A 401(a) qualified plan (defined benefit)	Yes*	Yes
A 403(a) annuity	NO	Yes
A 403(b) plan (also known as a tax sheltered annuity plan)	Yes	Yes
A 457(b) government plan, also known as a deferred compensation plan, that is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or local governmental entity and which agrees to accept your rollover and separately account for amounts transferred into such plan from the MTRS.	NO	Yes
You—Subject to certain tax liabilities, restrictions and penalties.	Yes**	Yes

*A qualified defined contribution or defined benefit plan that will separately account for the pre-tax and after-tax funds may accept after-tax funds in a direct rollover.
**If you have the after-tax portion of your payment paid directly to you—instead of rolled over by us to one of the eligible plans—and you then want to roll over that portion within 60 days of receiving the payment from us, you can roll over that amount to a traditional or Roth IRA only.

You may avoid the 10 percent penalty (see above question) and 20 percent federal withholding tax either by:

• having the MTRS transfer the entire taxable portion of your refund into an eligible retirement plan or
• on your own and within 60 days after we have paid you your refund, rolling over the entire pre-tax portion of the refund into an IRA or qualified plan. (As a reminder, by law, we must withhold 20% of the taxable portion. If you take a full refund from us and then decide to roll over the pre-tax portion, you will need to use your own funds to make up the 20% that we withheld. Later, when you file your annual federal income taxes, you may be entitled to a refund from the IRS of the 20% amount that we withheld; you need to address this with the IRS at that time.) For example: Tim chose to receive a TOTAL REFUND of his account, and thus only received 80% of the taxable portion of his account. The remaining 20% of the taxable portion was sent to the IRS by the MTRS as income tax withholding. Upon receiving his refund check, Tim decided to roll over his account on his own. To do this, Tim must roll over the taxable portion to a traditional IRA (or to an ‘eligible employer plan’ that will accept his rollover) within 60 days of receiving his refund check from the MTRS. However, in order to roll over 100% of the taxable portion of his payment, Tim must find other money to replace the 20% that was withheld. If he rolls over only the 80% he received, he will be taxed on the 20% that was withheld and not rolled over. By rolling over the full amount of his taxable portion, Tim’s rollover will not be taxed until he withdraws it from the IRA or employer plan. Please visit the IRS website for additional information.

I have determined that I am eligible to withdraw my money from my annuity savings account. However, I do not want to withdraw my money at this time. Can I just leave the funds in my account with the MTRS?

Yes, you may leave the money in your MTRS annuity savings account. The MTRS will keep your funds on account and continue to send you annual statements which show your balance and any activity, such as addition of interest. Although your statement will reflect additional interest each year, you will be eligible to receive interest on your account for only two years following the date of your termination of service if you apply for a refund at a later date. If, however, you do not take a refund but later return to a position which requires membership in a Massachusetts contributory retirement system, all interest reported on your statements will be credited. Taxes are not assessed on this money until your annuity savings account funds are paid to you in a refund or retirement allowance, or paid to someone else as a result of your death.

How do I apply?

At the bottom of this page you will find a link to our refund application. Please complete and send the application to us.

What is the refund amount that I can expect to receive?

Your refund will be the total of your retirement contributions, plus any payments you have made to purchase service, plus the interest you are eligible to receive. For these amounts, please refer to your most recent annual statement of annuity savings account or contact us.

If you choose to receive your refund as:

• A total refund paid directly to you, by law, we must withhold 20% of the pre-tax amount for federal taxes, and send that amount to the IRS. In many cases if you are younger than 59-1/2 years of age, your refund is subject to a 10 percent income tax penalty. We do not withhold this tax penalty from your refund. We will send you a 1099 in the following January so that you can report the refund payment, and amount withheld, when you file your taxes.
• A rollover to a financial institution, you will instruct us how much, and to which financial institution, you wish to roll over your refund amount. In this case, we will not withhold 20% of the pre-tax amount rolled over. Please note, if you rollover to a Roth IRA, a special rule applies under which the amount of the payment rolled over (reduced by any after-tax amounts) will be taxed. You may elect to have an amount withheld from your pre-tax payment by submitting a W-4P withholding form (available at www.irs.gov) with your completed refund application.

I haven’t been employed by a Massachusetts public school district for years. Do I still need to complete and submit an application?

Yes. In order to apply for a refund, all members must complete Part 1 of the application and have their most recent former employer complete Part 2.

Can I fax my application?

No, please mail your application so that we have your original signature on file.

I don’t have a printer. Can you mail the application to me?

Yes. Please contact us to request that a refund application be mailed to you.

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This is the last step. However, before you access the application, call our main office at 617-679-MTRS if:

• your effective membership date is:
  • BEFORE April 2, 2012 and you either have 20 or more years of creditable service OR you have 10 or more years of creditable service and are age 55 or over (in other words, you may be eligible to apply for a retirement allowance); OR,
  • ON OR AFTER April 2, 2012 and you have 10 or more years of creditable service and are age 60 or over (in other words, you may be eligible to apply for a retirement allowance); OR,
• you wish to receive an estimate of your refund amount; OR
• you do not know the name of the Massachusetts public school district by which you were last employed.