Options for Your DROP Retirement Account
The Deferred Retirement Option Program (DROP) is unique to FRS Pension Plan Members. Under this program, you stop earning service credit toward a future benefit, your retirement benefit is then calculated, and your monthly retirement benefits accumulate in the FRS Trust Fund earning interest & COLA while you continue to work for an FRS employer.
Upon termination, your DROP account is paid to you in
One of Three ways:
Option 1 – Receive a lump sum payment. (A Financial Land Mine)
(NOT A GOOD IDEA BECAUSE OF TAXATION AT POSSIBLY A VERY HIGH TAX BRACKET, LOSS
OF PROTECTION FROM LEANS, JUDGEMENTS, GARNISHMENTS, AND LOSS OF TAX DEFERRAL)
Option 2 – Combination Partial Lump Sum Payment and Rollover
allowing you to take advantage of both of the previous options
Option 3 – Roll it over to an IRA
With the right proper financial tool where:
1. Taxes remain deferred until withdrawal, (Tax-Free if converted to a ROTH)
2. There’s no cost or taxation for rolling it over to an IRA
3. It has little to no fees at all depending upon the objectives to achieve
4. You get an immediate bonus
5. Growth keeps up with inflation
6. You can’t lose to risk, correction or volatility of the market, EVER
7. You get a guaranteed rate of return for income purposes while in deferral
8. You get a Predictable Life Income
9. You do not lose control or ownership of the principal
10. You do not annuitize
11. Your loved ones inherit it all upon your death
12. Your loved ones can “stretch it” so they don’t pay full tax upon your passing
Doing nothing is not an option…
As it will result in a check being issued to you after 60 days of retirement minus a mandatory 20% tax withholding and the possible loss of all benefits of a tax deferred account, including the “Safe Harbor” provisions of a qualified retirement account.
You will pay ordinary income taxes upon withdrawal from a qualified retirement account, deferred compensation plan, or an individual retirement account (other than a ROTH). Your accounts may be subject to a 10% tax penalty if withdrawn prior to age 59 1/2 .
