9 Income Tax Considerations 9.1 Taxation The decision of how to receive the distribution of your TRF My Choice DC and/or Rollover Pre-Tax Contribution funds can have significant tax implications. It is recommended that you consult with a tax advisor. INPRS can explain options to you but cannot offer tax advice. Any contributions to your DC made with after-tax dollars are considered “tax basis” because you have already paid taxes on those dollars. Mandatory contributions paid by employers were not taxed at the time they were paid. Therefore, they do not create “tax basis”. Upon distribution, any after-tax contribution (tax basis) is reported by INPRS as non-taxable on the IRS Form 1099-R issued to terminated members and the IRS. However, it is important to note that the tax basis is recoverable under very specific IRS rules. If you elect to receive a lump sum distribution of your TRF My Choice Plan, the entire tax basis is recovered in total since there are no recurring payments. However, if you select a partial lump sum and partial annuity, the basis will be split between the two, and the annuity recovery will be based on your age. If you annuitize your TRF My Choice Plan, the basis allocated to the monthly annuity payment is divided up and recovered over a mandatory number of monthly payments, as determined by applicable IRS regulations. Therefore, a portion of each monthly benefit paid to you is non-taxable, for as long as the basis remains. If contributions are received after you have requested a final distribution and the total account balance has been paid, the contribution is accepted, and another distribution will be paid as a lump sum if it is less than $1,000. If you were paid a disbursement in error, INPRS will work to restore the money if you subsequently return to work. This division of the basis is required because the IRS has issued a letter ruling to INPRS concluding that the DC and monthly annuity payment payable to you do not constitute separate accounts. The consequence of this ruling is that, upon distribution, basis from contributions to the DC must be partially allocated to the monthly annuity payment through MetLife, as described above. Tax Withholding & Forms 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. Each year, INPRS mails IRS 1099-R forms to all members who have taken a distribution of TRF My Choice funds by January 31. The 1099-R form lists the total amount of benefits received during the year. If you are a monthly annuity recipient, you will receive your 1099-R tax form from MetLife. TRF My Choice: Retirement Savings Plan Member Page 25 of 30 Handbook Effective: 07/01/2024