What Happens to TRS if I Leave Teaching in Texas?

The Teacher Retirement System of Texas (TRS) provides retirement and healthcare benefits to public education employees across the state. TRS serves active educators, retirees, and their beneficiaries. When a teacher leaves employment in Texas, understanding the options for their TRS account and benefits is a primary consideration. This article details the paths an individual can pursue for their TRS funds upon separation from service.

Your Choices for Your TRS Account

Upon ceasing employment, individuals face key decisions regarding their accumulated TRS contributions. Options include withdrawing funds, leaving them in the TRS system, or transferring them to another qualified retirement plan. Each choice carries distinct financial implications depending on personal circumstances and future plans.

Several factors influence this decision. The number of years of service credit determines vesting status and eligibility for future benefits. An individual’s age also influences access to funds and potential penalties, particularly for early withdrawals. Consider immediate financial needs against long-term retirement savings goals.

Future employment plans play a role, especially if considering work in another public education system or moving to a different sector. The tax implications of each option must be carefully evaluated, as they can significantly impact the net amount received or preserved. Members can access their account information and benefit estimates through the MyTRS online portal.

Withdrawing Your TRS Funds

Withdrawing TRS funds results in a lump-sum payment of accumulated contributions and interest. Eligibility for a refund requires permanently terminating all employment with TRS-covered employers, without immediate promise of re-employment. The full amount of accumulated contributions must be withdrawn.

To initiate a refund, complete the Application for Refund form (TRS 6). This form requires a notarized signature, certifying employment termination. Submit the TRS 6 form and any other required documentation to TRS by mail, fax, or electronically through the MyTRS member portal.

Refunded pre-tax contributions are subject to 20% federal income tax withholding unless rolled over. A 10% early withdrawal penalty from the IRS may apply if the individual is under age 59½, unless an exception applies. TRS issues a Form 1099-R for the distribution, reporting the total lump-sum payment, taxable income, and taxes withheld. This form is mailed by January 31st of the year following the refund. A refund payment can be issued within 60 days after all required documents are received and the employer’s final payroll report is processed, though the process may extend up to 90 days.

Leaving Your Funds in the TRS System

An individual may leave their accumulated contributions within the TRS system rather than withdrawing or transferring them. This allows funds to remain with TRS, potentially continuing to earn interest. If an individual has less than five years of TRS service credit, their account earns 2% interest annually for up to five years while absent from TRS-covered employment. For those with at least five years of service credit, contributions continue to earn interest as long as funds remain with TRS.

Leaving funds in the system is relevant for vested members, which occurs after five years of service credit. Vesting ensures an individual is entitled to a future retirement annuity once they meet age and service requirements. If a member does not take a refund, they can apply for a lifetime retirement annuity based on their service and salary history when eligible.

Applying for retirement benefits later involves specific forms and eligibility criteria, such as meeting the “Rule of 80” (age plus years of service equaling 80) or reaching a certain age with a minimum number of service years. This pathway preserves the possibility of a future pension, but the funds are not immediately accessible. If a member refunds their account, they terminate their service credit and forfeit valuable future benefits, including eligibility for a retirement annuity.

Transferring Your TRS Funds

Transferring TRS funds, often called a rollover, moves accumulated contributions to another qualified retirement account. This can be a “direct rollover” or an “indirect rollover.” In a direct rollover, TRS sends funds directly to the new retirement plan or account custodian, which avoids immediate taxation and penalties. For an indirect rollover, funds are sent to the member, who then has 60 days to deposit them into another eligible retirement account.

Eligible accounts for rollovers include a Traditional IRA, Roth IRA (with specific tax implications), or a new employer’s qualified plan such as a 401(k), 403(b), or 457(b). If rolling over to a Roth IRA, pre-tax contributions become taxable in the year of the rollover. For an indirect rollover, TRS may withhold 20% for federal income tax. If the full amount, including the withheld portion, is not rolled over within 60 days, the unrolled portion becomes taxable income subject to potential penalties if under age 59½.

To initiate a rollover, individuals complete a Refund Rollover Election form (TRS 6A). This form specifies the amount to be rolled over and requires certification from the receiving financial institution that it is eligible to accept the funds. Coordinating the transfer process between TRS and the receiving institution is important to ensure correct completion within required timelines.

Healthcare Coverage After Leaving Teaching

Leaving teaching employment impacts healthcare coverage, specifically eligibility for TRS-Care. TRS-Care is the health benefit program for retirees and their eligible dependents. Eligibility for continued TRS-Care coverage after leaving employment is tied to meeting specific retirement criteria, such as age and years of service credit required for a retirement annuity. If an individual does not meet these criteria upon separation, their existing TRS-Care coverage will cease.

When TRS-Care is no longer an option, individuals need to explore alternative healthcare coverage. One possibility is COBRA, which may allow for temporary continuation of health coverage through their former school district, though often at a higher cost. Another common option is to seek coverage through the Health Insurance Marketplace established under the Affordable Care Act. This allows individuals to compare plans and potentially qualify for subsidies based on income.

New employment may offer employer-sponsored health plans. Individuals might also be able to enroll in a spouse’s health plan if that option is available. It is important to be aware of special enrollment periods that are often triggered by a loss of coverage, allowing enrollment in new plans outside of the annual open enrollment period.