If you leave employment with the Wisconsin Retirement System before reaching minimum retirement age, you have two options:
- Wait until you reach at least minimum retirement age (and are vested) to take a retirement benefit. This means you will keep your WRS account open with ETF and it will continue to earn interest until you apply for a benefit.
- Take a separation benefit. This is a one-time, lump-sum payment consisting only of employee contributions, additional contributions (if applicable), and accumulated interest. Review this page to learn about the significant consequences of this decision.
Eligibility
You are eligible for a separation benefit if you no longer work in WRS-covered employment, and you are:
- Under age 55 (50 for members with any protective category service), or
- Age 55 or older (age 50 for members with any protective category service) and you are not vested.
You cannot return to work for any WRS-participating employer before your separation benefit is paid, or within 75 days of your WRS employment end date, also known as your termination date. If you do, ETF must cancel your separation benefit application and you will be required to repay any benefit that has already been paid.
If you are the former spouse of a participant and have received a portion of the participant’s account under a Qualified Domestic Relations Order, see the Alternate Payees section of the Separation Benefits (ET-3101) brochure.
Considerations
Carefully consider if a separation benefit is the best option for you. If you are vested, you will be eligible for a higher benefit if you wait until you are minimum retirement age (age 55 for general category employees or age 50 for protective category employees).
The decision to take a separation benefit now, instead of waiting to take a retirement benefit, may have significant financial, and tax consequences.
Less Money
When you take a separation benefit, you will lose your employer contributions and interest. For most members that’s about 50% of the value of their account.
Your benefit may be further reduced by taxes. If you do not rollover your benefit to a qualified retirement plan, the funds will be subject to income tax, and ETF must withhold 20% of your benefit. If you are younger than 59 ½, you must also pay early withdrawal tax penalties.
See section six on your WRS Annual Statement of Benefits for an estimate of your separation benefit.
Account Closed, Service Lost
By taking a separation benefit, you are closing your WRS account. If you later begin working in an eligible WRS position, your WRS account will be treated as if you are a new employee for all programs. This also means you must earn five years of WRS-creditable service, starting with your new WRS position, to be vested for the retirement benefit. Your service prior to your separation benefit will not count toward becoming vested.
Payment Options
How you receive your benefit payment will impact your taxes.
Direct Rollover to a Qualified Account
If your separation payment is $200 or more, you can defer taxation if you choose to roll over your payment to:
- A traditional or Roth Individual Retirement Account (IRA).
- An eligible qualified employer plan: 401(a), 401(k), Roth 401(k), 403(a), 403(b), Roth 403(b), 457(b), and Roth 457(b).
ETF will send you a check that is payable directly to your IRA or employer plan, and then you must send it to the IRA or employer plan.
When submitting your separation application for a direct rollover, you must also submit the Authorization for Direct Rollover (ET-7355) form. This form tells ETF how to write the check to your plan. Take care when filling out this form as checks will not be reissued. If your plan will not accept the check as written, you will have to take this as direct payment with tax consequences.
Direct Deposit or Paper Check
Your benefit will be subject to state and federal taxation if you receive it as a paper check or direct deposit it into a savings, checking, or money market account. You will receive your payment faster if you select to receive your payment as a direct deposit.
ETF must withhold 20% of your benefit and send it to the Internal Revenue Service (IRS) as federal income tax withholding. If you would like ETF to withhold more than 20% for federal taxes, complete the IRS Form W-4R and return it to ETF. You may also owe state taxes, which ETF won’t withhold from your payment.
If you are younger than age 59½, you may be subject to early withdrawal tax penalties. See Federal Withholding Requirements and Rollover Options (ET-7289) for more information, including information on an indirect rollover.
Timeline
ETF will direct deposit your benefit payment approximately 30-60 days after receiving your completed application.
Processing time varies, depending on the volume of applications and when we receive the final earnings report from your employer. This information is usually reported after your last paycheck. If you have any questions about your final earnings report, contact your last employer.
If you are thinking about applying for a separation benefit near the end of the year and you want annual interest included in your benefit, wait until January 1 or later to apply. It may take up to 90 days to receive your benefit payment if you apply from mid-December through January, due to the interest crediting process.
Apply for a Benefit
ETF must receive your completed separation benefit application before you turn age 55 (age 50 if you have any protective category service). After you turn age 55 (age 50), you are eligible for a retirement benefit instead of a separation benefit, unless you are not vested.
Keep your address updated with ETF. The January after you receive your separation benefit, ETF will send you a 1099-R form which you will need to file your taxes.