Leaving IPERS-Covered Employment Before Retirement Choosing the Best Alternative For You

Alternative 3: Take a Cash Refund

You may also take a cash refund when you leave IPERS-covered employment. If you elect a refund, you must withdraw your entire account. You cannot leave a portion of your money in IPERS.

Special Considerations

When you take a refund, you terminate your IPERS membership, which could mean giving up a right to lifetime monthly benefits and IPERS disability and death benefits. If you receive a refund, you will forfeit any service credits you have earned. If you later return to covered employment, you will be enrolled as a new member without credit for any service before the refund.

Generally, the only way to reinstate a period of service covered by a refund is to return to IPERS-covered employment and pay the applicable buy-back cost (see the Purchasing Service topic for more information). Limited exceptions may apply to persons who are reinstated following an employment dispute and persons who qualify for social security or railroad retirement disability benefits. Contact IPERS for more information if you fall into one of these groups.

Once you file for a refund, you cannot work in IPERS-covered employment for 30 days after terminating your employment or your refund will be revoked. If you return to IPERS-covered employment before 30 days have passed, you must pay back the amount of your refund within 30 days of notification from IPERS. After the 30-day notification period, you must pay the buy-back cost to restore service credit for the period covered by the refund.

About Taxes

If your taxable cash refund is paid directly to you (instead of being rolled over), 20 percent of the taxable portion will automatically be withheld to pay federal income taxes plus an additional 5 percent for state income taxes if you are an Iowa resident. Depending on your personal situation, you may be subject to additional withholding at tax time. Your cash refund is considered taxable income in the year in which it is received.

In addition to income tax withholding, you may be responsible for an additional 10 percent early-withdrawal tax penalty if payment is received before age 59½. This is in addition to your regular federal income taxes and any applicable state income taxes. Under certain circumstances, the additional 10 percent tax may not apply.