If you terminate employment with the California public school system, you may leave your contributions on deposit with CalSTRS or apply for a refund of your member contributions and accrued interest.

Termination of employment means an action by you, such as submission of a resignation, or action by your 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 later decide to reinstate to active status 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 CalSTRS service credit 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.
   • 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 of CalSTRS service credit 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 Individual Retirement Account (IRA) will be subject to 20 percent federal withholding from your refund.
   • Your refund may be subject to additional federal and state taxes—10 percent federal penalty tax and 2.5 percent state penalty tax—if you take your refund before age 59½.
   • 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   • You may not redeposit the withdrawn contributions unless you re-qualify for membership or are eligible for concurrent retirement, under certain conditions.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.

Your member contributions plus credited interest will be refunded in full; 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. Employer contributions go into the Teachers’ Retirement Fund to fund CalSTRS.

To request a refund of your account, submit a Refund Application available online or from your school district office.

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 with 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 IRS requires CalSTRS to withhold 20 percent from your refund if you do not roll over your funds to a qualified retirement plan or Individual Retirement Account (IRA).

In addition, the Internal Revenue Code imposes a special penalty tax on early distributions, such as a lump-sum distribution before you reach age 59½. Your refund may be subject to a federal special penalty tax of 10 percent of the taxable portion of the distribution in addition to the regular federal income tax and a state penalty tax of 2.5 percent in addition to the regular state tax.

We recommend that you consult a qualified tax professional. Also see the CalSTRS publication Tax Considerations for Rollovers for information on 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 your spouse's signature on your Refund Application.

If your spouse does not sign the application, or the Justification for Non-Signature of Spouse or Registered Domestic Partner form is not completed and returned with the application, your application and certified or endorsed copies of the validating documents will be held for up to 90 days pending receipt of your justification form. Under state law, if CalSTRS does not receive your justification form within 90 days, your application for a refund will be canceled.

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 percent applies to eligible distributions made from a qualified retirement plan, such as CalSTRS. This tax will be withheld on any eligible distribution if it is not rolled over directly into another qualified plan.

An eligible CalSTRS distribution would be a lump-sum death payment or the tax-deferred contributions and interest included in a refund or return of the accumulated contributions in your CalSTRS account. Payees 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 percent federal withholding tax before the distribution is issued, so payees will receive only 80 percent of the distribution.

To request a refund of your contributions and accumulated interest, submit the Refund Application form. When applying for an eligible distribution, payees 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 federal rollover rules apply to your situation, consult a qualified tax professional.