IRA Rollovers for Public Employees: What to Know Before You Leave

When you leave public employment, whether at retirement or mid-career, you'll face decisions about the money you've accumulated in your retirement account. These decisions have long-term tax consequences that are hard to undo.

Most public retirement systems offer a few options when you separate: leave your money in the system and take a deferred pension later, take a lump-sum refund of your contributions (often with a penalty and tax hit), or roll your contributions into an IRA.

The rollover option is often the most powerful and most misunderstood. Done correctly as a direct rollover to a traditional IRA, you owe no taxes and no penalties, and your money continues growing tax-deferred.

Mistakes to avoid: taking a cash distribution and then trying to redeposit it (you have 60 days and the plan withholds 20% for taxes), rolling into a Roth IRA without understanding the immediate tax bill, and not coordinating the rollover with your broader retirement income plan.

If you're leaving public service mid-career, you may also have options to continue contributing to an IRA independently and build personal wealth alongside the eventual pension benefit you're deferring.

These decisions are interconnected. Getting one wrong affects the others. We build a coordinated plan before any elections are made, not after.