Refunds of Contributions

Table of Contents

• Is a refund right for you?
  

• Qualifying for a refund
  

• Taxes and penalties if you take a refund

Is a refund right for you?

If you are vested (through IMRF or reciprocal service), having money in IMRF is a valuable asset for your future retirement.

The decision to take a refund should not be made lightly. By accepting a refund of your contributions you forfeit all rights to any future IMRF benefits, although you may repay your refund at a later date if you return to work with an IMRF or reciprocal employer for two years.

If you have at least 12 months in IMRF and have service credit in another Illinois Reciprocal System, this credit may be combined to meet the vesting requirements for both systems.

If you have less than 12 months of service in IMRF and do not plan to return to an IMRF employer, we recommend that you consider a refund or rollover of your IMRF funds.

The one exception to this is if you participated in IMRF as a Teacher Aide and earned less than 12 months of IMRF service credit, and you transferred to a position covered by the Teachers’ Retirement System, you may apply your IMRF service toward a reciprocal pension even though it does not meet the 12-month requirement.

Be aware that you cannot take a refund of your contributions if you are still working for the same IMRF employer, even if you no longer participate in IMRF.

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Qualifying for a refund

To qualify for a refund you must no longer be working for an IMRF employer and one of the following cases will apply:

• You have less than eight years of service credit (not vested): All of your IMRF contributions will be returned to you upon request. You can complete IMRF Form 5.10 to request a refund. If you apply for a separation refund of your IMRF contributions, like any other refund of member contributions that is paid when a member terminates employment with an IMRF employer, separation refunds under the IMRF Regular plan are payable without interest.

  OR

• Your have eight or more years of service credit (vested):

• Less than age 55 - All of your IMRF contributions will be returned to you upon request. You can complete IMRF Form 5.10 to request a refund. However, you will be forfeiting a right to a future pension. Please note, Form 5.10 must be notarized. If you submit the form without it being notarized, it will be returned to you and your refund will not be processed.
  
  
• Age 55 or older - If your IMRF service qualifies you for a monthly pension of $30 or more, you cannot withdraw your contributions, but instead will receive them as a part of your monthly pension.
  
  Exception to age 55 or older refund rule: You can receive a refund only if you will roll it over into another defined benefit retirement plan to purchase qualifying service credit.

If you take a refund of your contributions, you may redeposit those withdrawn contributions and reinstate your years of service credit. To do so, you must again participate for two years in IMRF or another Illinois public pension system under the Reciprocal Act. You may redeposit the withdrawn contributions, plus interest, either in a lump sum or installments.

Note that you must terminate employment with your IMRF employer before you can take a refund. You cannot be working for the same employer that you earned the credit with, even if you are no longer working in an IMRF qualified position. For example, if you contributed to IMRF as a teacher's aide (in a non-certified position) and then went to work at the same school as a teacher covered under TRS, you cannot take a refund of your IMRF contributions.

If you are vested in IMRF, there are other circumstances under which part of your contributions may be refunded to you upon retirement. Read more about Surviving Spouse contribution refunds, SLEP refunds, and ECO refunds.

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Taxes and Penalties if you take a refund

If you don’t qualify for an IMRF pension when you reach retirement age, we encourage you to consider a refund or rollover of your funds to a traditional IRA or another retirement plan that will accept IMRF funds.

Before dollar signs start flashing before your eyes, be aware of the following facts:

Why wouldn't you want to take a refund?

When you take the refund rather than roll your contributions into another plan, IMRF is required by federal law to withhold 20% of the taxable portion of your separation refund for federal income tax. Depending on your years of service and age, you may also be liable for a tax penalty of 10% over your tax rate.

Is there any time IMRF would not withhold the 20% for federal taxes?

If any of your IMRF contributions are “previously taxed,” IMRF will not withhold the 20% for federal taxes when taken as a refund. Previously taxed contributions are noted as such on your Member Statement of Account.

What is a rollover?

A rollover means that you transfer or reinvest your IMRF funds (or other qualified retirement money) into another vehicle for retirement savings without incurring tax penalties. The plan you “roll” the money into can be a traditional IRA, a 401(k), 457, 403(b) plan, or other qualified retirement plan that will accept the rollover.

Can you take your IMRF contributions and continue saving for retirement on a tax-deferred basis?

To continue deferring federal income taxes on your IMRF contributions until retirement, consider the options made possible by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). When EGTRRA became law in 2001, it increased the portability of assets from defined benefit plans such as IMRF. Note: EGTRRA provides many other retirement saving incentives not mentioned in this article.

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