Tax information is based on the university’s current understanding of highly complex Internal Revenue Code and U.S. Treasury Department regulations. It is provided for general informational purposes only. The University of Michigan does not provide tax advice. It is the responsibility of the plan participant to comply with federal tax regulations. Questions or concerns should be addressed to a qualified tax adviser.
All income is eventually taxable. Retirement contributions that were made with tax-deferred dollars will be subject to Federal income tax requirements when you take a distribution from your account. Many people find it advantageous to postpone withdrawals until they retire because their income tax bracket is generally lower.
TIAA and Fidelity are required by federal regulations to withhold 20% from certain types of distributions. This is not a penalty; it is a federal income tax withholding at the time of distribution. When you file your taxes for the year, you may owe more or less, depending on your final tax liability.
The following types of distributions are subject to the mandatory 20% withholding:
The following types of distributions are not subject to the mandatory 20% withholding:
Distributions of after-tax Roth contributions to the 403(b) SRA and 457(b) are tax-free since taxes were paid when taken from your paycheck. Earnings on after-tax Roth contributions are tax-free when they are a qualified distribution.
A qualified distribution is generally a distribution that is made after a 5-taxable-year period of participation and is either:
If the distribution does not meet these criteria it is not qualified and income tax is due on the earnings.
The Internal Revenue Service (IRS) imposes a 10% early withdrawal penalty if you take a distribution from a qualified retirement plan (such as the Basic Retirement Plan or 403(b) SRA) prior to age 59½, unless an exception is met. If an exception is not met, you must pay the penalty each time you withdraw funds before you are age 59½. The penalty does not apply to distributions of your contributions and earnings from the U-M 457(b) Deferred Compensation Plan.
The 10% penalty is not withheld at the time of the distribution; you pay it when you file your federal income tax return. TIAA or Fidelity will issue Form 1099-R to you for the distribution at the end of the year. You must include the 1099-R with your federal tax return.
Qualified distributions from the after-tax Roth 403(b) are not subject to the 10% early withdrawal penalty. However, the penalty generally applies to nonqualified distributions of after-tax Roth 403(b) SRA amounts made prior to age 59½ unless an exception is met.
Exceptions to the IRS penalty are listed below. Note that there are additional exceptions to the penalty, some of which only apply to IRA distributions, which are not listed below. Consult with a qualified tax adviser if you have questions.
If you qualify for one of the exceptions to the early withdrawal penalty, you may need to file IRS Form 5329 with your federal return in order to claim the exception to the penalty. Part I, Line 2 of the form allows you to list a code indicating which exception to the penalty you are claiming. You can download IRS Form 5329 along with the instructions for completing the form and the codes to claim an exception to the penalty by visiting the IRS website.
Your W-2 will display the amount of contributions, if any, that you have made to the U-M retirement savings plans. This information can appear in more than one box, depending on which plans you have contributed to during the year. The U-M matching contribution for the Basic Retirement Plan is not reported on this form.
If you are a compulsory participant in the Basic Retirement Plan, your contribution on your U-M earnings over the Social Security wage base ($168,600 for 2024) is a mandatory 401(a) contribution and is reported in Box 14 with the label “401a” You will not see a figure in Box 14 with the label “401a” if your earnings are less than the Social Security wage base, or if you are a voluntary participant in the Basic Retirement Plan.
The IRS Retirement Saver’s Credit is a nonrefundable tax credit available to eligible individuals who make elective contributions to certain types of retirement plans.It is designed to encourage people to save for retirement.You may be eligible for a credit of up to $1,000 for combined voluntary contributions you make to the following types of plans
Depending on your adjusted gross income, you may be eligible for a maximum credit of $1,000.The amount of the credit is based on the adjusted gross income of you and your spouse and the amount of contributions you make.
You are eligible for the credit if you are:
For more information on income requirements and the amount of the credit, visit Retirement Savings Contributions Credit (Saver’s Credit) on the IRS website.
Michigan tax law may permit you to subtract qualifying pension benefits included in your adjusted gross income from Schedule I of the Michigan MI-1040 tax form. This reduces your income that is subject to Michigan income tax. The amount you may subtract depends on several factors. As always, you should seek expert tax advice for your own tax situation.
For more information, contact:
Michigan Department of Treasury
Lansing, MI 48922
Income Tax Information
(800) 827-4000
michigan.gov/treasury
If you have exceeded the 2023 federal limit for contributing to a retirement plan because you made elective deferrals to another plan in addition to the U-M plans, you can request a refund of the excess from the U-M Basic Retirement Plan, 403(b) SRA, or 457(b), as applicable.
A W2 or final paycheck from your other employer is required to request a refund of excess.
Please contact the SSC Contact Center at (734) 615-2000 to report the excess and request a refund. A retirement plan specialist will work with you regarding the necessary documentation and submit the request for the refund to TIAA and/or Fidelity Investments.
You will need to submit the following to the Benefits Office by March 1, 2024 to have the excess distributed by April 15, 2024:
The Benefits Office will submit the refund request to TIAA and/or Fidelity Investments once the documentation has been received and the refund request has been finalized.
Contributions you make to a Roth IRA do not reduce how much you may contribute to the U-M Roth 403(b) SRA or the U-M Roth 457(b).
Submit your questions to the SSC Contact Center. You can also call the SSC at 5-2000 from the Ann Arbor campus, (734) 615-2000 locally, or (866) 647-7657 toll free, Monday through Friday from 8 a.m. to 1 p.m. and 2 p.m. to 5 p.m..
The University of Michigan in its sole discretion may modify, amend, or terminate the benefits provided with respect to any individual receiving benefits, including active employees, retirees, and their dependents. Although the university has elected to provide these benefits this year, no individual has a vested right to any of the benefits provided. Nothing in these materials gives any individual the right to continued benefits beyond the time the university modifies, amends, or terminates the benefit. Anyone seeking or accepting any of the benefits provided will be deemed to have accepted the terms of the benefits programs and the university's right to modify, amend, or terminate them. Every effort has been made to ensure the accuracy of the benefits information in this site. However, if any provision on the benefits plans is unclear or ambiguous, the Benefits Office reserves the right to interpret the plan and resolve the problem. If any inconsistency exists between this site and the written plans or contracts, the actual provisions of each benefit plan will govern.