Chad Stacy | Financial Adivsor
Rodney Rich & Company
In Florida, if you are employed in Education, or work for a State or County Department, you are probably familiar with the DROP program. But in case you are not, what exactly is DROP? DROP stands for Deferred Retirement Option Program.This program was designed to build credits based on the length of an employee’s career, and those credits are then turned into a pre-tax benefit at the time of retirement. There is one credit earned for each month worked.
Participation in the DROP program can last up to 60 months, and the balance of an employee’s account is fixed. There is no vesting schedule.
So, What Can I Do With My Drop Balance?
1. FRS Investment Plan – You can roll your balance into a tax-deferred account.
Pros – Low cost investment options.
Cons – No personal advisor (800 hotline); fewer distribution options.
2. Lump Sum Payment – You can take a full distribution of your balance.
Pros – Physical receipt of your money.
Cons – Mandatory 20% Federal Withholding; possible 10% IRS penalty if under 59 1/2 yrs old (certain exemptions apply); possible higher taxes on ordinary income.
3. Direct Rollover – You roll over your balance to a tax-deferred account with any Investment Company or institution of your choice.
Pros – You maintain control of your assets and your taxes; working with a local advisor to create a predictable sustainable income.
4. Combination Partial Lump Sum & Direct Rollover – You can take part of your balance for immediate cash and roll the remaining portion into a tax-deferred account.
Pros – Immediate cash to pay down debt or for personal discretion; control of remaining balance with the help of a local advisor to create a plan for predictable, sustainable income; working with the Investment Company or institution of your choice.
Cons – Partial Lump Sum has mandatory 20% Federal Tax Withholding.
When considering rolling over assets from an employer plan, factors that should be considered and compared between the various options include fees & expenses, services offered, investment options, when penalty fee withdrawals are available, when required minimum distribution may be required, and protection of assets from creditors & legal judgments. You should consult the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets. Need help deciding the right option for you? Let Rodney Rich & Company help! Contact Chad Stacy at 850-434-5321 to schedule an appointment.
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* Non-deposit investment products and services are offered through Cadaret, Grant & Co. Inc, a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through, Cadaret, Grant & Co. are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through Cadaret, Grant & Co. The Credit Union has contracted with Rodney Rich & Co. to make non-deposit investment products and services available to credit union members.