Except where specifically noted, the information in this section is equally applicable to pre-tax and post-tax (Roth) assets in the Plan.
Additionally, the information in this section is intended to highlight key issues, and should not be considered to be either tax guidance or advice in any form.
Loans from your account are permitted in accordance with the rules governing loans set by the IRS, your Provider’s product, and the Plan’s provisions. While loans from the Plan may be made for any purpose, the Deptartment of Higher Education (DHE), which is the Plan Administrator, will determine your eligibility for a loan.
Maximum Loan Amount: The maximum amount of your loan is generally the lesser of:
You should contact your Provider to determine your maximum loan amount and submit a loan request to the company. Your Provider will report your loan application to the DHE.
Minimum Loan Amount: The minimum loan from the Plan is $1,000.00
Loan Repayment Period: The loan repayment period is generally five years; the minimum period is one year. Loans for use in purchasing your principal residence may be repaid over periods up to fifteen years.
Outstanding Loans: You may have only two (2) loans from the Plan outstanding at any time.
Pre-Tax Loan Defaults: If you default on your loan payments, and you do not make-up the missing payments, then your loan will be considered a taxable distribution to you from the Plan. Additionally, a loan currently in default precludes you from taking another loan under the Plan.
Roth Loan Defaults: If you have held your post-tax (Roth) account for five (5) or more years, then the loan default is not considered a taxable event to you.
However, if you have not held your post-tax (Roth) account under the Plan for at least five (5) years, then the defaulted loan will be a taxable event for you., with the amount of after-tax contributions and taxable investment gain/interest pro-rated.
Distributions from the Plan are made upon your request, and subject to your eligibility as determined by the DHE. Each Provider offers a wide variety of payment methods, including:
You may use more than one method, and draw benefits at different times. You should contact your Provider to discuss which payment method(s) best suits your needs.
Distributions from the Plan are payable to either you or your beneficiaries upon the following “trigger events:”
Authorization: Only the Dept. of Higher Education, which is the Plan’s Administrator, can authorize your requests for distributions from the Plan.
Financial Hardship: The IRS defines “financial hardship” to be an immediate and heavy financial burden that cannot be met by other resources. The Plan Administrator will determine your eligibility for a distribution from the Plan because of financial hardship.
The Commonwealth utilizes the IRS ’ safe harbor to administer hardship withdrawals. This means that you must take all loans for which you are eligible from the Commonwealth’s plans prior to being eligible for a hardship withdrawal. Only your contributions to the Plan may be distributed to you as a hardship withdrawal. Additionally, you must discontinue your contributions to this Plan for six months immediately following receipt of your hardship withdrawal.
You should submit your request for a hardship withdrawal directly to your Provider. The DHE will then review your request and, where appropriate, authorize the hardship withdrawal for you.
You should anticipate providing reasonable documentation of your claim of hardship (e.g. invoices, letters of eviction/foreclosure, tuition bills, etc.) along with your completed application.
The Plan will rollover distributions to a qualified recipient plan or Individual Retirement Account upon your request. Please note that not all payment methods are eligible for rollover treatment. You should discuss distribution methods with your Provider, and tax matters with qualified counsel.
The IRS requires minimum amounts to be distributed from the Plan to you after you attain age 70 ½ and have terminated employment with the Commonwealth (for any reason). You should contact your Provider(s) to determine the amount of your Required Minimum Distribution(s).
Federal and state income taxation depends on the tax status of the assets distributed from the Plan: pre-tax or post-tax (Roth) assets.
Early Withdrawal Penalty: Certain distributions paid prior to your attaining age 59 ½ may be subject to a 10% Early Withdrawal Penalty imposed by the IRS. The penalty is in addition to regular income tax that may be due on the amount you receive from the Plan.