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Distribution of DROP
When your Deferred Retirement Option Plan (DROP) participation ends, you will have several options of how you can draw from your DROP account.
- You can take a total lump-sum distribution.
- You can take a partial lump-sum distribution and leave the balance in your DROP account to draw from at a later date.
- You can transfer the balance to another qualified plan.
- You can leave the balance in your DROP account, where it will continue to earn 3% interest. Money left on deposit in the DROP account can only be withdrawn up to four times per calendar year. Remember:
All money remaining in the DROP account must be withdrawn no later than April 1 of the calendar year after you are 70 years, 6 months of age.
Indicate your choice for your DROP distribution on the DROP Account Distribution Request (R0665H) form.
Tax Information for DROP Distributions
- State police are exempt from the IRS' 10% early withdrawal penalty if they are age 50 or older when they take their lump-sum DROP distribution. The distribution code on your federal income tax Form 1099-R would reflect an early distribution-exception applies.
Tax forms are issued each January. In the year that you take a DROP distribution from the Michigan Office of Retirement Services (ORS), you will receive a federal Form 1099-R from ORS for your pension and another for your DROP distribution. If you transfer your DROP money to a qualified plan, once you begin taking distributions from your investment account, such as from Voya Financial, your investment company will issue 1099-Rs for those distributions.