There are several things to consider when you are about to retire. As a teacher, the DROP program can add to the level of uncertainty about your retirement plan.
Like many other educators, you have probably attended several seminar and events that bombard you with options for your retirement. We hope to be the voice through the noise.
Your credit union can help you execute a plan and take steps that help you to develop a comprehensive retirement strategy based on your needs. We have compiled some of the common questions many teachers have about their DROP program options. Let’s start with the basics:
The DROP program stands for Deferred Retirement Option Plan. It is a program that was designed to provide you with an alternative method of payment for your retirement benefits for a limited and selective period. Florida offers a DROP program to its teachers. Once you reach normal retirement age, you have the option to begin participating in DROP.
Eligibility for DROP is based on a variety of factors. The most common are that you be 62 years of age or have 30 years of service. If you meet the requirements you can participate in the program for five years.
Additionally, DROP allows you to continue employment as a teacher all while receiving many retirement benefits. However, instead of receiving monthly pension payments, those payments accumulate in a Florida Retirement System (FRS) Pension Plan or Teacher’s Retirement System (TRS) trust fund. Upon your retirement, you receive the funds in that account in a lump sum payment and begin receiving normal monthly pension payments. But, as with any retirement plan, there are exceptions and restrictions.
Since your money cannot be held in the DROP account, teachers are given some options. These include deferred compensation and taking a lump sum distribution and rolling the money into a Rollover IRA. In the case of the lump sum distribution, the entire amount will count as income for that year and you will be required to pay income taxes on the entire amount. This can prompt a significant tax hit. If you roll the money over into deferred compensation or an IRA, you can continue to defer the taxes and invest the funds. Whether you use your deferred compensation plan or an IRA will depend on several things; including your age, how much flexibility you want with your investments, professional management and the actual types of retirement investments you wish to consider.
This is a question that is unique for each and every teacher. As you prepare to retire there will be many options presented to you, but many teachers are unaware of the financial planning services that their credit union can offer.
From longer life expectancies to fewer employers offering traditional pension plans, it’s wise to start taking a hands-on approach to your retirement. You can talk with your local credit union about retirement savings verticals, including IRAs and Roth IRAs.
Furthermore, your credit union can help you determine whether it is wise to enter a DROP Program or wait. They can also help you navigate your options when you leave a DROP program.
Through Achieva Wealth Advisors, we provide a variety of investment options that can be tailored to your retirement planning objectives. We specialize in helping members with Florida’s Deferred Retirement Option Program (DROP). If you are an eligible FRS Pension Plan member, you can roll over your DROP funds into one of several qualified options. DROP gives you the security of a monthly retirement check combined with an extra pot of money that you can control with a direct rollover.
Deferred Retirement Option Program. Tallahassee, FL: Florida Department of Management Services, 2014. Web.
“Department of Management Services.” Deferred Retirement Option Program (DROP) / Members / Retirement / Workforce Operations / Florida. N.p., n.d. Web.
“Teaching CERTIFICATION.COM Making the Process Easy…” Florida Teaching Salaries and Benefits. N.p., n.d. Web.
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