Rolling Over a Refund

You may roll over your refund to an eligible individual retirement account (IRA) or another eligible employer plan. Please note, a rollover payment will be sent to your mailing address for you to deposit. We cannot mail the rollover check directly to the rollover institution. See Guides for more information on eligible accounts.  

Eligible rollover institutions include the North Carolina Supplemental Retirement Plans (NC 401(k) and NC 457 Plans), Traditional IRA, Roth IRA or another employer’s eligible plan. This must be completed within 60 days of your distribution. Generally, you will need to have an open account to complete rollover process. 

The NC 401k plan and the NC Public Employee Deferred Compensation Plan (457(b) plan) offered to public employees in North Carolina are eligible plans. If you choose to proceed with a rollover, please advise your plan administrator that our plan is a 401(a) defined benefit plan under the Internal Revenue Code. You must also provide the Retirement Systems Division with a letter from your financial institution that manages your eligible plan. This letter should accompany this form. The purpose of this letter is to ensure the Division that the institution will accept the rollover of your refund (financial institutions are not legally required to accept roll-overs of refunds). This letter must meet the following requirements:  

• Be from the financial institution (on its letterhead)  
• Give your name and your account number of the eligible IRA or employer plan  
• Give the type of retirement plan, such as IRA or another qualified employer plan  
• Clearly state that the institution will accept a rollover  
• Clearly state how to make the check payable  
• Have an authorized signature of an agent of the institution. 

Qualified Retirement Plans for an Eligible Rollover 

To rollover without potential tax implications, you need to elect to rollover to a qualified retirement plan. This includes: 

• North Carolina Supplemental Retirement Plans (NC 401(k) Plan, NC 457 Plan or the NC 403(b) Program) – Note: You must already have an account in order to roll into the NC Plans. 
• Traditional IRA 
• Roth IRA 
• SEP-IRA 
• Another Governmental Pension Plan 
• Another Employer Retirement Plan  

If you are rolling over to a qualified retirement plan, you may need to complete a Rollover Pre-Approval form with the administrator of that account and also may need to provide supporting documentation from your current pension plan. You will then be required to upload an approval letter or documentation to your Refunds Online application. 

When adding one or more institutions in your Refunds Online application, you will be given the option to specify the dollar amount and which institution should receive all remaining funds not yet applied to your account, including interest and unreported payroll (if applicable). Once submitted, you are not able to edit the institution, amount or modify the All Remaining election. To make a change, you will need to delete the institution and re-add the institution. See the Refunds Online Checklist for more information. 

Guide E. Special Federal Tax Notice Regarding Refunded Retirement Contributions

Form 5

You are receiving this notice because all or a portion of a payment you are receiving from the Retirement System is eligible to be rolled over to an eligible IRA or an eligible employer plan. This notice is intended to help you decide whether to do such a rollover.

Summary of Federal Tax Rules

A payment from the Retirement System that is eligible for rollover can be taken in two ways. You can have all or any portion of the payment either (1) paid in a direct rollover or (2) paid to you in a lump sum distribution. This choice will affect the tax you owe. A rollover is a payment of the accumulated employee contributions either to an eligible IRA or to an eligible employer plan.

Eligible IRA or Other Employer Retirement Plan

An "eligible IRA" includes a traditional IRA and a Roth IRA; it does NOT include a SIMPLE IRA, Education IRA, or Coverdell Education Savings Account (formerly known as an education IRA). Eligible distributions from the Retirement System may be rolled over to a traditional IRA or a Roth IRA. See Guide G,

Special Rules Applicable for Rollovers to a Roth IRA

An "eligible employer plan" includes a plan qualified under Section 401 (a) of the Internal Revenue Code, including a 401(k) plan, profit sharing plan, defined benefit plan, stock bonus or money purchase plan; a Section 403(a) annuity; a Section 403(b) tax sheltered annuity; and an eligible Section 457(b) deferred compensation plan maintained by a governmental employer.

If you choose a direct rollover to a traditional IRA or eligible employer retirement plan:

• Your payment will not be taxed in the current year and no income tax will be withheld.
• Your payment will be made directly payable to an eligible IRA or eligible employer plan that accepts your rollover. Your payment will be taxed later when you take it out of the eligible IRA or eligible employer plan. Depending on the type of plan, the later distribution may be subject to different tax treatment than it would be if you had received a taxable distribution from the Retirement System.

If you choose to have the accumulated contributions paid to you:

• The Retirement Systems Division is required to withhold 20% of the taxable portion and send it to the IRS as income tax withholding.
• If you are under age 59 ½, you will have to pay the 10% additional income tax on early distributions on the taxable portion of accumulated contributions from the Retirement System (including amounts withheld for income tax) that you do not roll over, unless one of the exceptions listed below applies. This tax is in addition to the regular income tax on the payment not rolled over. The 10% additional income tax does not apply to the following payments from the Plan:
  • payments made after you separate from service if you will be at least age 55 in the year of the separation (or if you are a public safety employee and you are at least age 50 in the year of the separation),
  • payments made due to disability (as defined in Internal Revenue Code), or
  • payments after your death.
• Your payment will be taxed in the current year unless you roll it over. You may be able to use special tax rules that could reduce the tax you owe.
• You can roll over the payment to an eligible IRA or an eligible employer plan that accepts your rollover within 60 days of receiving the payment. The amount rolled over will not be taxed until you take it out of the eligible IRA or eligible employer plan.
• Within this 60-day period, if you want to roll over 100% of the payment to an eligible IRA or eligible employer plan, you must find other money to replace the amount that was withheld. If you roll over only the portion that you receive, you will be taxed on the amount that was withheld and not rolled over. Special rules apply if you are making a rollover to a Roth IRA.