Get Full Government Meeting Transcripts, Videos, & Alerts Forever!
Get email alerts on the Rmds And Taxes topic
No spam. Unsubscribe anytime.
NPERS warns retirees: 'Golden Rule'—you must cease employment before taking distributions; missed RMDs and lump sums carry heavy tax consequences
Summary
NPERS staff said members must cease employment to access accounts, outlined required minimum distribution rules, and described withholding on lump sums (20% federal, 5% Nebraska) plus potential additional taxable penalties if early-withdrawal rules apply.
At a NPERS pre-retirement seminar, Heather Critchfield Smith, education services manager, told attendees that one fundamental rule governs access to retirement funds: you must cease employment before you can take them.
"You have to cease employment to take funds from a retirement account," Heather said, calling the requirement the IRS 'Golden Rule' and explaining it determines eligibility for distributions and can affect when required minimum distributions (RMDs) must begin.
Why that matters: RMD timing and distribution format affect taxes and potential penalties. Heather warned that missed RMDs can trigger substantial penalties and that cash-balance accounts have a special constraint: if a cash-balance participant takes any refund they must take the entire account in a single one-time distribution event.
On taxes and withholding, Heather described the mechanics members should expect when taking a lump-sum distribution: NPERS will withhold 20% federal tax and 5% Nebraska state tax by default when issuing a lump sum, though members who qualify can file a W4N to request Nebraska withholding exemption. She added that early-withdrawal penalties can apply if a member is subject to the early withdrawal tax rules, saying the combination of mandatory withholding and later tax liabilities can result in a large portion of a distribution being taxed.
Heather also discussed RMD-specific timing: NPERS sends notices to members as they near RMD ages and urged members who continue working past RMD age to plan, because RMD obligations may require full-account action for some cash-balance participants.
The presentation stressed practical steps: create NPERS and Meritus online accounts, use the NPERS benefit estimator to plan income timing, and consult a financial adviser if considering conversions, large rollovers or annuity purchases. "If you do rollovers into Roth accounts that is a taxable event," Heather cautioned, "and you need to be prepared for the tax consequences."
The seminar closed with NPERS contact information for one-on-one help and recommended that members consult NPERS staff and tax professionals before making distribution decisions.
