What to do with your Old TRS Pension

Chris Reddick |

If you decide to leave a position paying into TRS, know your choices with your accumulated money in this pension.

You are eligible to withdraw the accumulated employee contributions from your TRS account. However, you must refund the total amount in the account. The drawback here is the employer contributions are not refundable. This is a significant drawback of withdrawing the money from TRS, as in 2022, your contribution was 8%, and the state contribution was 7.75%. If you decide to refund the account, this would be a lot of money left on the table.

If you have less than five years of service credit, the general rules are that you can leave your accumulated contributions and earn 2% interest per year for up to five years. But your TRS account will be terminated after five years. This will give you enough time to decide what to do with the accumulated balance in your TRS account. Depending upon the amount accumulated, it might make sense to roll the balance into an IRA or current 401(k) or 403(b) plan. However, the amount of interest is meager that can be earned. And you are not eligible for the pension.

If you worked for at least five years, you can leave the accumulated contributions with TRS and earn an interest of 2% per year. Then, when you meet the age requirements for retirement, you can apply to retire from TRS. This is the most critical decision, in my opinion. The benefit of the TRS pension is lifetime monthly payments and perhaps a survivor's benefit. Pensions are rare nowadays, and having a monthly check come into your bank account can help you retire comfortably.

To proceed with this, I would first calculate the monthly pension benefit against the lump sum and determine what interest rate you would need to get an equivalent benefit in retirement. You can use online calculators to make this comparison. Or you can reach out to me, and we can work on this together.

What do you do with the money in your TRS account if you decide to get it refunded? If you choose to cash out the account, you will face federal income tax withholding of 20%, and if you are under age 59.5, you will also have to pay a 10% early withdrawal penalty. So this would be the most tax-inefficient way of refunding the money and is generally not recommended.

A more tax-efficient and perhaps better way would be to roll over into a traditional IRA or your current 401(k) or 401(b) plan. Of course, you will not have to pay any income taxes until you withdraw the retirement money if you do this. TRS provides a helpful guide that explains how to get the money out of the account and your choices.

Choosing what to do with your old TRS pension is very important. Everyone has unique circumstances that need to be considered. Some prefer to have a lifetime monthly income, while others prefer to invest the money and perhaps get a better return. There is no one best answer, and a calculation would need to be performed to determine what might be the best choice given your circumstances. Reach out to me on the contact page below to learn more about my retirement income planning services.


*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on to avoid federal tax penalties. Individuals are encouraged to seek advice from their tax or legal counsel. In addition, individuals involved in the estate planning process should work with an estate planning team, including personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.


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