Drawing Benefits from the Plan

Except where specifically noted, the information in this section is equally applicable to pre-tax and post-tax (Roth) assets in the Plan.

Additionally, the information in this section is intended to highlight key issues, and should not be considered to be either tax guidance or advice in any form.

Loans

Loans from your account are permitted in accordance with the rules governing loans set by the IRS, your Provider’s product, and the Plan’s provisions. While loans from the Plan may be made for any purpose, the Department of Higher Education (DHE), which is the Plan Administrator, will determine your eligibility for a loan.

Maximum Loan Amount:  The maximum amount of your loan is generally the lesser of:

1. 50% of your account balance under the Plan; and
2. $50,000.00
3. TIAA Plan Loans: Loans made under the Plan from TIAA may not exceed the lesser of $50,000 and forty-five percent (45%) of the value of the participant’s vested account balance (as of the valuation date immediately preceding the date on which such loan is approved by the Plan Administrator).

You should contact your Provider to determine your maximum loan amount and submit a loan request to the company. Your Provider will report your loan application to the DHE.

Minimum Loan Amount:  The minimum loan from the Plan is $1,000.00

Loan Repayment Period:  The loan repayment period is generally five years; the minimum period is one year. Loans for use in purchasing your principal residence may be repaid over periods up to fifteen years.

Outstanding Loans:  You may have only two (2) loans from the Plan outstanding at any time.

Pre-Tax Loan Defaults:  If you default on your loan payments, and you do not make-up the missing payments,  then your loan will be considered a taxable distribution to you from the Plan. Additionally, a loan currently in default precludes you from taking another loan under the Plan.

Roth Loan Defaults: If you have held your post-tax (Roth) account for five (5) or more years, then the loan default is not considered a taxable event to you.

However, if you have not held your post-tax (Roth) account under the Plan for at least five (5) years, then the defaulted loan will be a taxable event for you., with the amount of after-tax contributions and taxable investment gain/interest pro-rated.

Distributions

Distributions from the Plan are made upon your request, and subject to your eligibility as determined by the DHE. Each Provider offers a wide variety of payment methods, including:

• Full and partial lump sums
• Lifetime annuity income
• Installments over fixed periods
• Systematic withdrawals

You may use more than one method, and draw benefits at different times. You should contact your Provider to discuss which payment method(s) best suits your needs.

Distribution Trigger Events

Distributions from the Plan are payable to either you or your beneficiaries upon  the following “trigger events:”

• Your termination of employment with the Commonwealth;
• Your attaining Age 59 ½;
• Upon your becoming disabled (the Plan Administrator determines participant’s disability)
• Because of financial hardship you incur (as defined by the IRS); and
• Upon your death.

Authorization: Only the Dept. of Higher Education, which is the Plan’s Administrator, can authorize your requests for distributions from the Plan.

Financial Hardship: The IRS defines “financial hardship” to be an immediate and heavy financial burden that cannot be met by other resources. The Plan Administrator will determine your eligibility for a distribution from the Plan because of financial hardship based on information you provide.

You should submit your request for a hardship withdrawal directly to your Provider.  The DHE will then review your request and, where appropriate, authorize the hardship withdrawal for you.

You should anticipate providing reasonable documentation of your claim of hardship (e.g. invoices, letters of eviction/foreclosure, tuition bills, etc.) along with your completed application.

Rollover of Distributions

The Plan will rollover distributions to a qualified recipient plan or Individual Retirement Account upon your request. Please note that not all  payment methods are eligible for rollover treatment. You should discuss distribution methods with your Provider, and tax matters with qualified counsel.

• Pre-tax rollover: A payment of pre-tax assets that meets the requirements to be rolled over, may be rolled over to either any other pre-tax account under an eligible retirement plan or an IRA.
• Post-tax (Roth) rollover: A payment of post-tax assets that meets the requirements to be rolled over, may be directly rolled over to either any other Designated Roth Account in another retirement plan or a Roth IRA.

Required Minimum Distributions

The IRS requires minimum amounts to be distributed from the Plan to you after you attain age 70 ½ and have terminated employment with the Commonwealth (for any reason). You should contact your Provider(s) to determine the amount of your Required Minimum Distribution(s).

Taxation

Federal and state income taxation depends on the tax status of the assets distributed from the Plan: pre-tax or post-tax (Roth) assets.

• Pre-tax Assets: Income tax is payable on pre-tax amounts you draw from the Plan. Your Provider will assist you with any tax withholding that is either required by state and federal governments or requested by you. You should discuss all tax matters relating to the Plan with qualified counsel.
• Roth Non-qualified Assets: If you draw post-tax assets from the Plan prior to your having completed at least five years of participation, then the investment gain on your post-tax contributions will be subject to current income taxation by the federal government and likely your state government.
• In the case of a (non-qualified) Hardship Withdrawal, the distribution to you will be comprised proportionately of your post-tax contributions and the (taxable) investment gain thereon.
• Roth Qualified Assets: If you draw post-tax assets from the Plan after completing five years of participation, then the funds will not be subject to taxation by the federal government.  You should contact your (resident) state’s department of revenue to determine if the investment gain on your post-tax contributions would be tax-free for state income tax purposes.

Early Withdrawal Penalty:  Certain distributions paid prior to your attaining age 59 ½ may be subject to a 10% Early Withdrawal Penalty imposed by the IRS. The penalty is in addition to regular income tax that may be due on the amount you receive from the Plan.