I have worked in education for 12 years and have not reached retirement age but I am vested after 5 years. I also have all my credits in for social security. If I quit my job with education and draw everything out of TRS and roll it over to an IRA will I still be penalized from social security? My social security retirement would be better than my TRS retirement. I was wanting to go back to a job that takes out social security.
You may be able to avoid the penalty, but since every situation is so different, it may not make sense.
To sidestep the penalty, here’s what you need to know.
You must take out your contributions to the teacher’s retirement before you become eligible for a pension. Once you’ve reached eligibility, it’s too late to withdraw your contributions and avoid the Windfall Elimination Provision.
Here’s what the Social Security website says in their section RS 00605.364 Determining Pension Applicability, Eligibility Date, and Monthly Amount.
Withdrawals of the employee’s own contributions and interest made before the employee is eligible to receive a pension are not pensions for WEP purposes if the employee forfeits all rights to the pension. This rule applies even if the employer paid the employee contributions.
Withdrawals of the employee’s own contributions and interest made after the employee is eligible to receive a pension are considered a lump-sum pension for WEP purposes.
Any separation payment, withdrawal, or refund consisting of both employer and employee contributions is a pension; for WEP purposes whether made before or after the employee is eligible to receive a pension.
It’s crucial to understand the meaning of the word ‘eligibility’ as defined by the SSA. It DOES NOT mean that you have stopped work! In fact, you could still be working and deemed ‘eligible’ for your pension. This is disastrous to those individuals who planned to wait until a week before they retired to withdraw their contributions.
In another section of the SSA website, they define ‘eligibility’ as follows:
An individual becomes eligible for a monthly pension or a lump sum in lieu of a monthly pension the first month he or she meets all requirements for payment except stopping work and applying for the payment [emphasis added].
Before you do this, be sure you understand all of your options. You can start by reading my article Social Security and Lump Sum Pensions: What Public Servants Should Know
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