Members who terminate employment with the California public school system may leave their contributions on deposit with CalSTRS or apply for a refund of their member contributions and accrued interest.

Termination of employment means action by the employee, such as submission of a resignation; or action by the employer, such as dismissal or layoff. Termination does not automatically occur at the end of the school year.

As an active contributing CalSTRS member, you are eligible for substantial benefit coverage, but if your contributions are refunded, you forfeit your rights to any member benefits. Additionally, if you should decide to reinstate to active status in the future, and redeposit previously refunded contributions and interest, any unused sick leave that was accumulated prior to your refund will not be included in your service credit calculation when you apply for Service Retirement.

Upon your termination of employment, you may choose from three alternatives:

1. If you have less than five years of credited CalSTRS service and leave contributions on deposit:
   • Your account will continue to accrue interest
   • You will not have to re-qualify for membership if you return to teaching
   • You may withdraw your contributions at any time if you are no longer teaching
   • You are not eligible for a retirement benefit unless you return to teaching or qualify for concurrent retirement
2. If you have five years or more credited CalSTRS service and leave your contributions on deposit:
   • Your account will continue to accrue interest
   • You will not have to re-qualify for membership if you return to teaching
   • You may withdraw your contributions at any time if you are no longer teaching
   • At age 55 you are eligible for a retirement benefit even if you never return to teaching
3. If you withdraw your contributions:
   • You will receive contributions and interest credited to your account
   • Tax-deferred contributions and interest not rolled over to a qualified retirement plan or IRA will be subject to IRS-required 20% federal withholding from your refund
   • Your refund will be subject to an additional IRS-imposed special 10% penalty tax, and a State penalty tax of 2.5% on early lump sum distribution before age 59 1/2
   • You will no longer be a CalSTRS member and will not be eligible for any benefits
   • You may not redeposit the withdrawn contributions unless you re-qualify for membership or are eligible for concurrent retirement, under certain conditions
   • You will have to perform one full year of creditable service before becoming eligible for any benefits, even if you redeposit previously refunded contributions

Member contributions plus credited interest will be refunded in full upon request; partial refunds are not permitted.

Previously taxed and tax-deferred member contributions and interest earned are refundable, but employer contributions are not credited to your individual account and are not refundable as employer contributions are used to fund the System.

To request a refund of your account, submit a Refund Application.

How to Request a Refund of Your Contributions

If you wish to withdraw your member contributions plus accrued interest, you must file a termination of employment notice with each of your employers and a Refund Application, with each of your former employers.

Instructions on how to submit your Refund Application are included on the second page of the application.

Refunds are processed in two phases:

• The initial check will be for contributions and interest posted to your account as of the date the refund is processed. This check will be mailed within three weeks from the date we receive your valid refund application.
• A second check will be issued in approximately four months for additional contributions if your school district reports any contributions after the refund date.

Tax-deferred member contributions and accumulated interest credited to your account are taxed upon withdrawal. The Internal Revenue Service (IRS) requires that CalSTRS withhold 20% from your refund if you do not roll the funds over to a qualified retirement plan or Individual Retirement Arrangement (IRA).

In addition, the Internal Revenue Code imposes a special penalty tax on early distributions, such as a lump sum distribution, received before the plan participant reaches age 59½. The special penalty tax of 10% of the taxable portion of the distribution is applied in addition to the regular income tax. A State penalty tax of 2.5% on early lump sum distributions will also be due.

We recommend that you consult a qualified tax professional for advice on how to proceed. Also, topic 703 under Quick Topics discusses how to defer federal taxes on your refund by rolling over the funds into another tax-deferred program.

Any member contributions paid with previously taxed income are not taxed when refunded, nor are these funds eligible for rollover.

Teachers Retirement law requires a member's spouse to sign any submitted refund application. See Quick Topic 108 for information on spousal acknowledgement requirements.

Refund Rollovers

A rollover is a tax-free transfer of an eligible distribution from one qualified employer retirement plan directly to another qualified plan or Individual Retirement Account (IRA).

The federal income tax withholding rate of 20% applies to eligible distributions made from a qualified retirement plan, such as CalSTRS. This tax shall be withheld on any eligible distribution if it is not rolled over directly into another qualified plan or IRA.

An eligible CalSTRS distribution would be a lump sum death payment and/or the tax-deferred contributions and interest included in a refund or return of the accumulated contributions in the member’s CalSTRS account. A payee may elect to receive the eligible distribution directly and roll it over on their own within 60 days; however, CalSTRS must deduct the mandatory 20% withholding before the distribution is issued, thus the payee will receive only 80% of the distribution.

To request a refund of your contributions and accumulated interest, submit a CalSTRS Refund Application form. When applying for an eligible distribution, the payee must indicate on the application whether or not the distribution is to be rolled over. For more information about refund rollovers, see the CalSTRS publication Tax Considerations for Rollovers.

This message summarizes Internal Revenue Code rollover rules and is not intended as tax advice. To determine how Internal Revenue Code rollover rules apply to your situation, we suggest that you consult a qualified tax professional for advice.