Expert: Allen - 12/27/2004

Question
I work for the NYPL and it pays into the NY State Retirement Fund.  If I "leave" before I am fully vested at age 55 and just "withdraw" my funds, should I just ask for a check or have it sent directly to an IRA account to avoid taxes?  Should I arrange this at a bank first?  Also, can they keep part of the funds I put into it myself?  I was "vested" at 5 years last July and the library only started kicking in contributions at that point.
Thanks

Answer
The answer to your questions will depend on the rules governing the administration of the plan. You will probably have to go to the plan administrator to get details. The rules will also be in a document known as a Summary Plan Description which should have been given to you either when you were hired or when you became eligible to participate in the plan.
Some general comments which apply most of the time (but may not for your plan):
1. You probably have to terminate employment before you can receive the money in the plan
2. If you receive the money, it will be subject to tax. The plan administrator will withhold 20%. However this is often not enough and you may want to have the administrator withhold more.
3. If the money is transferred directly from the plan to an IRA at a bank or another financial institution, it will not be subject to tax at this time. Tax is only due when it is paid to you from either the plan or the IRA.
4. When money is paid to you it is subject to state and federal income tax. In most cases if it is paid before you reach age 59 1/2, it is also subject to a 10% penalty tax.
5. If you are setting up an IRA, you probably should go to the bank or other financial institution to get the papers to open the account before you contact the administrator of your plan.