State employees typically are fully vested after 10 years. In some service positions, you may vest earlier. In some states, such as Washington, you may be fully vested after as soon as 5 years of service. If you have enough years of service that your pension is already vested, there’s no point in trying to transfer it to another state. You would lose valuable benefits by doing so.
If you have an online account through your plan administrator, you may be able to apply for deferred status online. Once you’ve submitted your application, you’ll receive a status letter confirming the date that your account will go into deferred status. After that date, you won’t be able to make any additional contributions to your account.
You can also update your beneficiary while you’re in deferred status. Make sure your beneficiary is current, particularly if you are unmarried and have no minor children.
If you don’t start the process early with a deferred account, you could end up losing some of your pension benefits.
If you anticipate that your move is only temporary, you may lose more than you gain by pulling your money out of your pension account. Weigh the value of the lifetime pension and insurance against the value of your personal contributions. You may also want to discuss the decision with your family – particularly your spouse, if you’re married. Most states only allow you to withdraw your personal contributions plus some of the accumulated interest. You lose contributions made by your employer and state, as well as regular adjustments for inflation. [7] X Research source
You can typically find this information on your latest pension statement, or your online pension account. You can also talk to your plan administrator.
This can be beneficial if you have several years to go before you’re fully vested. You’ll ultimately get more benefit because you won’t lose all of the contributions made on your behalf by your employer and the state. Your pension administrator will be able to tell you if partial vesting is available. This information may also be included on your latest pension statement.
Buying service credits can get expensive, and may not adequately meet your retirement needs. Consult a tax advisor or financial planner if you’re not sure what you want to do. Buying service credits typically entails buying the entire cost of contributions and interest. In other words, you’re putting into your account what you would have put in had you worked that year. This can add up to tens of thousands of dollars relatively quickly. [10] X Research source Some states have online calculators that you can use to determine if the pension benefits you’ll receive are worth the cost of buying service time. Check the website of your state’s department that administers your retirement benefits.
Most states limit the number of service credits you can buy. Depending on how long you worked in the other state, you may not actually be able to buy enough service credits to make up that lost time. Consider the relative value of the benefits offered in one state and those in the other. If your new state’s pension plan is significantly more generous than the one you currently have, it may be worth investing in the new state’s plan as opposed to trying to keep the old one. You might also think about where you plan to retire. For example, if you are leaving your home state to teach elsewhere, but plan to return to your home state when you retire to be closer to your family, it might make more sense to do what you could to keep the plan in your home state.
You can also start the refund process by calling your plan administrator or talking to a pensions representative at work.
Typically you cannot withdraw only part of your personal contributions. You must withdraw all of the money or none at all. If you withdraw your personal contributions before you’ve vested, you may face tax consequences as well as early withdrawal penalties. You may be able to avoid tax consequences by transferring your personal contributions to an approved tax-deferred retirement plan rather than having them refunded directly to you.
Unless you transfer your funds to a qualified plan, your plan administrator is required to withhold 20 percent of the amount for taxes. As with a direct refund, you can only withdraw your personal contributions and some interest. Any employer or state contributions remain in the trust fund.
Ask your plan administrator about the transfer process, including how long it takes to move the funds from one account to the other, and when you will have access to your funds.
A financial planner can also help you re-evaluate your retirement planning in light of the funds you’ve lost by withdrawing from your pension early.
Typically, your employer will provide your pension administrator with the date of your last day of work. There may be a waiting period after that date for you to move your pension funds.
There are some IRA accounts that you can open with a balance less than $100. Shop around to find the account that best meets your needs. If you already have investment accounts with a bank or brokerage, you may want to start there.
Your pension administrator will have forms for you to fill out. If you have an online account, you may be able to complete the transfer online.
