Common DROP Questions

There are many things to consider when answering this question.

For example, do you plan to promote soon or are you at the highest pay scale you plan to achieve? If you are promoting soon, you may want to wait to lock in the higher pension amount since your base salary will be higher. Will you want to leave the job at the end of your DROP (typically 5 years)? Some are not ready to make this commitment. Once you choose to enter the DROP program, you will not be able to work more than 5 years(typically), therefore you must be mentally prepared to retire. Many sworn employees have asked whether they ought to go in the DROP for the maximum number of years they're eligible. I will help you examine this issue and see what is the most prudent course of action.

Since you cannot typically leave the money in the DROP account, you have basically 3 options:

  • Take a lump sum distribution
  • Roll the money to your deferred compensation plan (457), if the plan allows
  • Roll the money to an IRA

Concerning the Lump Sum distribution, there will be a 20% mandatory withholding for taxes since the full distribution is taxable. This is important to consider since the DROP distributions tend to be large sums, potentially leading to a significant tax liability.

If you roll the distribution to your deferred comp plan or to an IRA, you can continue to defer taxes and invest the money. The decision to roll the balance to an IRA or to the deferred comp plan will largely be based on your age, the flexibility you need with your investments, and the type of investments most appropriate for your situation.

This is a provision in the Internal Revenue Code from the Pension Protection Act of 2006.

72-10t allows withdrawals from DROP at age 50 without a 10% penalty for qualified public safety employees. It is a one-time, "use it or lose it" option and is calendar-based, not age-based.

This is a question that is unique for each person.

Some individuals need to supplement their pension and invest in CD's, corporate bonds, or income-producing mutual funds. While others need growth-oriented investments since they have a greater risk-tolerance and longer time-frame. I will review your situation, create a customized plan, and implement a portfolio that fits your goals and risk tolerance.

You should contact me prior to entering DROP.

I can help you determine whether it's prudent to enter the DROP program now or to hold-off. I can review your deferred comp plan to make sure you have an appropriate allocation. We will discuss what your options are at the end of DROP and put together a plan that allows for the most flexibility.

The advice and comprehensive plan will be a part of the financial planning process at no additional cost.

I am compensated at the point when the investments are implemented.

Common Drop Request