8 Tax Considerations 8.1 Tax Form 1099-R Each year, INPRS mails 1099-R forms to all benefit recipients by January 31. The 1099-R form lists the total amount of benefits received during the year. It also shows the taxable and non-taxable amounts. 8.2 Tax Withholding Your retirement distributions are subject to federal income tax withholding. INPRS can withhold federal, state, county, and local taxes from your monthly retirement pension benefit payments. If you did not complete tax withholding forms at the time of your retirement, you may do so at any time. INPRS is required by law to withhold 20% for federal income taxes for any non-recurring, taxable lump sum distribution that is paid directly to you. You will have to pay federal, state, county, and local income taxes on this taxable portion. 8.3 Taxation of Defined Contributions Basis Recovery Tax Rules Effective January 1, 2018 Your choice about how to distribute your DC and/or RSA funds can have important tax implications. INPRS urges you to consult with a tax advisor. INPRS can explain your options but cannot offer tax advice. The information below will help you and your advisors with federal tax rules as they apply to TRF Hybrid benefits. Contributions to your DC made with after-tax dollars are referred to as “tax basis”. Mandatory contributions paid by your employer were not taxed when they were paid so they do not create “tax basis”. At retirement, any after-tax contribution (your cost basis) is reported by INPRS as non-taxable on the IRS Form 1099-R. The 1099-R is issued to retired members and the IRS. It is important to note that your cost basis is recovered under very specific IRS rules. You can choose to receive a total withdrawal of your DC and/or RSA funds when you begin receiving your monthly pension benefit. This will include your total cost basis that is included in your DC account. There are two scenarios where the “cost basis” is still recoverable only with the monthly pension benefit: 1. Any service purchases using personal funds may also be included as a “cost basis”, and 2. Any vested distribution prior to January 1, 2018, with a cumulative cost basis. NOTE: INPRS only accepts rollover pre-tax contributions. Teachers' Retirement Fund Hybrid Plan Member Page 40 of 47 Handbook Effective: 07/01/2024