Leaving Public Work in Arizona? Think Twice Before Cashing Out Your ASRS Account

Maybe you’re leaving teaching for a private school job. Maybe you’re moving out of state, or changing careers. Either way, ASRS gives you a choice about the money in your account. You can take a refund, or you can leave it where it is.

A refund feels simple. It also ends more than most people realize.

What a Refund Actually Ends

Under Arizona law, taking your contributions back counts as withdrawing from ASRS membership. You give up all other ASRS benefits. That includes any future pension tied to the years you already worked.

ASRS benefits go beyond the monthly check. For members who qualify, they also include retiree health insurance and a premium benefit subsidy.

There is one way back, but it costs you. If you later return to work for an ASRS employer, you can buy back that forfeited service. The price is the refund you received plus interest, and ASRS sets eligibility rules for the buy-back.

How Much You Would Get Back

Your refund always includes your own contributions plus interest, at rates that vary by membership date. Whether you get any employer money depends on when you joined.

• Joined before July 1, 2011: with five or more years of service, you get a share of employer contributions. It starts at 25 percent at five years and reaches 100 percent at 10 years.
• Joined on or after July 1, 2011: you generally get only your own contributions. Employer money is included only if you had at least five years of service and lost your job in an employer reduction in force.

For many newer members, that means a refund returns only what came out of their own paychecks, plus interest.

What Leaving It on Deposit Keeps

If you leave your money with ASRS, your membership stays open. ASRS says members can keep funds on account until they meet normal retirement rules, then retire, even with only one month of service.

There is also no rush. You can leave the money on account now and still request a refund later if you change your mind.

Leaving it alone keeps another door open. Arizona law lets members who have not taken a refund combine separate periods of service when figuring benefits. If you return to public work later, your old years can still count. If you are weighing both paths, here’s a closer look at the choice.

The Tax Bill on a Cash Refund

If you take the refund as cash, the taxable part counts as income that year. The payer generally withholds 20 percent for federal tax. If you are under 59 and a half, you may also owe a 10 percent additional tax unless an exception applies.

Rolling the refund into an IRA or another eligible plan can delay the tax. You have 60 days from receipt to finish a rollover yourself. A direct rollover, paid straight to the new account, avoids the 20 percent withholding.

Here is how that withholding plays out. Say your taxable refund is $20,000 and it is paid to you. The payer withholds $4,000 and sends you $16,000. To roll over the full $20,000, you would need to add $4,000 from your own savings within 60 days.

Questions to Ask Before You Decide

Run through these before you file anything.

• When did my ASRS membership start?
• How many years of service do I have?
• Is there a chance I will work for an ASRS employer again?
• Would the refund cover a real need, or just feel good today?
• Do I have other savings that could cover a short-term need instead?

Your myASRS account can show a personalized refund estimate, including any employer share you would receive. For the exact wording of the law, read Arizona Revised Statutes section 38-740. A few minutes with both can keep a quick decision from costing you a pension.

If you are unsure, remember which choice is easier to undo. Leaving the account on deposit can change later. Reversing a refund means returning to an ASRS job and paying it back with interest.