TCDRS Retirement Options: Up to 100% Lump Sum If Employer Allows

Updated October 2, 2026. Quick answer: A Texas County and District Retirement System (TCDRS) member who retires chooses between the standard annuity, paid for life, and an optional annuity: a joint-and-survivor annuity or a lifetime annuity with a 180-payment guarantee. The choice can be changed only until the last day of the month the first benefit payment is made. If the employer offers it, a lump-sum payment of up to 100% of the account balance is available at retirement and permanently shrinks the monthly benefit. A refund of contributions cancels the service credit for that employer. Whether COLAs, the lump sum and service buyback exist depends on what each employer has adopted.

Standard annuity or optional annuity

TCDRS’s rules are set by the Texas statute, the TCDRS Act, read here in its 2023 edition. The Act says “A standard retirement annuity is payable throughout the life of a retiree.” A retiring member can choose something else: “Instead of the standard retirement annuity payable under Section 844.004, a retiring member may receive an optional retirement annuity under this section or an optional retirement annuity in another form authorized by the board of trustees.” The reduction is built in, because “At a member’s effective retirement date, an optional retirement annuity is actuarially equivalent to the standard retirement annuity to which the member is entitled.”

In the Act’s words, the joint option is “a retirement annuity that is payable monthly throughout the life of a retiree, and after the retiree’s death, throughout the life of an individual designated by the retiree”. The guarantee option is “a monthly retirement annuity that is payable throughout the life of a retiree and, if the retiree dies before 180 monthly payments have been made, the remainder of the 180 monthly payments are payable to the retiree’s beneficiary”. “The board of trustees by rule may authorize additional forms of optional retirement annuities, each of which must be actuarially equivalent to the standard retirement annuity to which the retiree is entitled as of the effective retirement date.”

How long you can change the election

The Act gives a short window. A retiree may revoke the application, change the payment plan or change the beneficiary “by filing written notice with the retirement system not later than the last day of the month a benefit payment is first made.” “After that day, a retiree may not revoke the application for retirement, change the annuity payment plan selected, or change the designated beneficiary except under Section 844.006.” One narrow exception covers divorce: a retiree on the joint-life option can revoke the beneficiary “if a court of competent jurisdiction in a divorce proceeding involving the retiree and beneficiary awards to the retiree the entire retirement benefit earned by the retiree.” The standard annuity is then paid.

Section 844.006 reaches further than the divorce case. A retiree on a life-only annuity can name a new beneficiary, subsection (a): “A retiree who is receiving payments under a retirement annuity computed on the life of the retiree only may revoke any existing selection and designation of beneficiary nominated to receive any payments that may become due under the annuity after the retiree’s death and may select a new beneficiary to whom payments may be made.” Subsection (d) adds a division of the benefit: “The benefit payable to a retiree who is receiving payments of a standard or optional retirement annuity may be divided by the retirement system into two annuities in accordance with the terms of a model qualified domestic relations order adopted by the board of trustees by rule.”

The Act also lets the board of trustees require a spouse’s consent. Sec. 844.010(b) opens: “the board of trustees may adopt rules to require consent of a member’s spouse to”, “the member’s selection of an optional form of retirement benefit”. Whether the board has adopted such a rule, and how it applies to your choice, is a question for TCDRS, not something the Act text read settles. The same subsection reaches two more elections than the one quoted above. Section 844.010(b) in full: “In addition to the authority provided by Section 804.051, the board of trustees may adopt rules to require consent of a member’s spouse to: (1) the member’s designation of a beneficiary who is not the member’s spouse; (2) the member’s selection of an optional form of retirement benefit; or (3) the member’s election of a withdrawal of contributions.” For how a spouse’s rights work in other plans, see spousal consent to waive a joint and survivor annuity.

The retirement date itself is constrained: “but the date must be the last day of a calendar month and may not precede the date the member terminates employment with the subdivision from which the member seeks to retire.” For the general trade between a single-life and a survivor benefit, see single life versus joint and survivor.

The lump-sum payment at retirement

TCDRS’s own brochure says: “If your employer offers the lump-sum payment option at retirement, you can take a single payment of up to 100% of your TCDRS account balance (your deposits and the interest it earned).” Employer permission comes first: “With the consent of the board of trustees, the governing body of a subdivision may authorize partial lump-sum distributions under this section.” The member’s side: “A member who is eligible and applies for service retirement may simultaneously apply for a partial lump-sum distribution under this section.” The ceiling in the Act is narrower than the brochure’s summary: “The amount of a lump-sum distribution under this section may not exceed 100 percent of the total accumulated contributions in the member’s individual account in the employees saving fund attributable to service with the subdivision for which the member has applied for retirement.” The brochure’s account balance wording should be read with the Act’s narrower, per-employer cap in mind.

The cost is a smaller check for life. TCDRS says “You still get monthly benefit payments for life, but the payments will be smaller based on the amount withdrawn in the lump-sum payment.” “For all purposes, the member’s basic annuity is the annuity actuarially determined from the sum remaining under Section 844.002(b) after deducting the amount of the lump-sum distribution.” The brochure adds a warning: “The lump sum may be less than the value of the reduction of your benefits over your lifetime.” Any employer-adopted COLA is affected too: “Future cost-of-living adjustments, if adopted by your employer, will be less because they are based on your reduced monthly benefit.” And the choice is final: “The decision cannot be reversed once benefit payments begin.”

Tax: “TCDRS is required by the IRS to automatically withhold 20% of your payment for taxes. You may also be subject to additional tax penalties.” “The lump-sum payment could also place you in a higher tax bracket for that reporting year because it counts as gross income.” “You can avoid paying taxes or penalties by rolling your withdrawal over into another tax-deferred retirement account, such as a traditional IRA.” A computed example from an assumed $60,000 payment, not a TCDRS figure: 20% withheld is $12,000. The withholding is a prepayment, not the final tax; the rollover rules are below, and the 20 percent withholding rule explains how the prepayment is settled.

What the IRS adds on tax

A refund or lump sum from a public pension is a distribution, so the IRS rules apply on top of TCDRS’s own. On withholding, the IRS says that a taxable eligible rollover distribution paid to you “is subject to mandatory income tax withholding (generally at a rate of 20%), even if you intend to roll it over later”, and that if you roll it over yourself “you’ll have to add funds from other sources equal to the amount withheld”. TCDRS’s brochure says a rollover into a traditional IRA or another tax-deferred account avoids the tax and penalties. The rollover clock, if the money is paid to you: “you have 60 days from the date you receive it to roll it over to another eligible retirement plan”.

On early distributions the IRS says “the law imposes a 10% additional tax on certain early distributions from certain retirement plans”. Its list of exceptions includes “Distributions made to you after you separated from service with your employer after attainment of age 55” and “Distributions made to a qualified public safety employee from a governmental plan”. Whether an exception fits a particular refund depends on your own plan and facts, so confirm it with a tax preparer before you take one.

Leaving: refund or a benefit later

A member who separates may take the money out. Under the Act, “A member who has separated from employment with a participating subdivision may submit an application to withdraw the member’s accumulated contributions attributable to service with that subdivision.” The price of doing so is stated plainly: “A withdrawal cancels the person’s service credit attributable to service with that subdivision on the date the retirement system makes payment of any portion of the member’s accumulated contributions.” Withdrawing everything also ends membership: Sec. 842.109 lists “withdrawal of all of the person’s accumulated contributions.”

Interest on the account: “interest is computed on the balance in the member’s individual account in the employees saving fund on January 1 of the year of withdrawal through the month before the month in which the withdrawal occurs.” A direct rollover is available: “the retirement system shall make the payment in the form of a direct trustee-to-trustee transfer but is under no obligation to determine whether the other plan in fact is an eligible retirement plan for that purpose.” Under Sec. 843.102(c), a person who withdrew and later returns to the same employer “is not eligible to receive service credit under this section for prior service for the subdivision.” The comparison of taking a refund and leaving the money is covered more generally in pension refund versus leaving it in.

Buying back and adding service credit

Reestablishing forfeited service credit is allowed only for a subdivision “the governing body of which by order authorizes reestablishment of the credit by eligible employee members of the subdivision.” The member does it “by depositing with the retirement system in a lump sum the amount withdrawn from the system, plus a withdrawal charge computed at an annual rate of five percent from the date of withdrawal to the date of redeposit.” “Prior service credit forfeited because of a withdrawal of contributions may not be reestablished under this section.” An order only helps employees already in place, section 843.003(b): “A member eligible to reestablish service credit under this section is one who is a member as an employee of the subdivision on the effective date of an order authorized by the subdivision under Subsection (a).” A computation of whether a purchase recovers its cost is on the pension buyback calculator.

Military service is a separate route. “All members of the retirement system are entitled to be credited with service for qualified military service that is subject to USERRA.” For other active duty, the five-year limit comes with an eligibility condition. Section 843.502(c): “An eligible member may establish credited service in the retirement system for qualified active duty military service not creditable under Subsection (b). Qualified military service includes military service before becoming an employee of the subdivision. A member eligible to establish credited service under this subsection is one who is vested, based on credited service only in this system and without regard to service that may be established under this subsection, in a service retirement annuity that may begin at the age of 60. An eligible member may establish not more than five years of credited service under this subsection by filing an application with the retirement system.” To keep earning credit during a military leave, the Act requires that “the person applies for reemployment with the same subdivision not later than the 90th day after the date the person is discharged from military service”.

Eligibility, COLAs and contribution rates

The Act’s retirement eligibility, in three parts. A member is eligible who “is at least 60 years old and has at least 10 years of credited service in the retirement system”. Or who “has at least 30 years of credited service in the retirement system”. Or who “has at least 10 years of credited service in the retirement system and the sum of the member’s credited service and attained age equals or exceeds the number 80.” Employers can loosen that: “A subdivision may adopt an optional service retirement eligibility provision providing less restrictive eligibility requirements.” “An optional service retirement eligibility provision may provide that a member who has at least eight years of credited service is eligible to apply for retirement if the member has attained age 60.” “An optional service retirement eligibility provision may provide that a member who has at least 20 years of credited service is eligible to apply for retirement.” The rule-of-75 version is section 844.1021(c), which also requires 10 years of credited service: “An optional service retirement eligibility provision may provide that a member who has at least 10 years of credited service is eligible to apply for retirement if the member has attained age 60 or an age at which the sum of the member’s credited service and attained age equals or exceeds the number 75.” Section 844.1021(e) adds a five-year version: “An optional service retirement eligibility provision may provide that a member who has at least five years of credited service is eligible to apply for retirement if the member has attained age 60.” Once an employer adopts one, subsection (b) says: “A subdivision may not revoke its adoption of an optional service retirement eligibility provision described by this section. A subdivision may adopt an optional service retirement eligibility provision providing less restrictive eligibility requirements.”

Cost-of-living increases are the employer’s choice, and the Act limits how often. Section 844.208(a): “The governing body of a participating subdivision, from time to time but not more frequently than once in each 12-month period, may provide for increased annuities to be paid to retirees and beneficiaries of deceased retirees of the subdivision. An annuity increased under this section replaces any annuity or increased annuity previously granted to the same person.” The amount is computed from the Consumer Price Index and the employer’s fraction, section 844.208(b): “The amount of annuity increase under this section is computed as the sum of the basic and supplemental annuities on the effective date of retirement of the person on whose service the annuities are based and is computed as if the person had selected a standard retirement annuity on the person’s effective date of retirement, multiplied by: (1) the percentage change in the Consumer Price Index for All Urban Consumers, published by the Bureau of Labor Statistics of the United States Department of Labor, from December of the year immediately preceding the effective date of the person’s retirement to the December that is 13 months before the month in which the effective date of the order or resolution providing the increase occurs; and (2) a fraction, specified by the governing body in the order or resolution, that is not less than 10 percent nor more than 100 percent and is a multiple of 10 percent.” Timing: “The effective date of an order or resolution under this section is January 1 of the year that begins after the year in which the governing body adopts and notifies the retirement system of the order or resolution.” Section 844.208(e) sets a floor: “If a computation under Subsection (b) does not result in an increase in the amount of annuity, the amount of the annuity may not be changed under this section.” A flat alternative also exists, and an employer cannot use both in one year. Section 844.209(a): “The governing body of the subdivision may not elect an increase in retirement annuities under Section 844.208 and under this section in the same 12-month period.” The flat alternative reads: “An increase under this section applies to all annuities for which the effective retirement date is at least twelve months before the effective date of the increase.” “The specified percentage increase may not exceed the percentage established by the board of trustees as the maximum allowable percentage increase.” An option or lump sum shrinks the increase in step: “An increase in an annuity that was reduced because of an option selection or partial lump-sum distribution is reducible in the same proportion and in the same manner that the original annuity was reduced.”

What members pay in: “The subdivision may elect a rate of four, five, six, or seven percent of the current service compensation of its employees.” And the employer can move it in either direction, after notice to the board. Section 845.402(b): “After timely notice to the board of trustees, the governing body of a participating subdivision may increase the rate of its member contributions effective with the first pay period beginning in the following calendar year.” Section 845.402(c): “After timely notice to the board of trustees, the governing body of a participating subdivision may reduce the rate of its member contributions effective with the first pay period beginning in the following calendar year.” Section 844.702(b) allows a lower rate in one case: “If necessary under Section 844.703(h), a subdivision’s member contribution rate may be reduced to one, two, three, four, five, or six percent of the current service compensation of its employees.”

If a member dies before retiring, the Act pays a death benefit: “if a member dies before retirement, a lump-sum death benefit is payable from the employees saving fund in the amount of” and subsection (a) reads in full: “Except as provided by Subsection (c), if a member dies before retirement, a lump-sum death benefit is payable from the employees saving fund in the amount of: (1) the decedent’s accumulated contributions; plus (2) interest computed on the decedent’s accumulated contributions on January 1 of the year of death from the beginning of that year through the end of the month before the month in which death occurs.” Subsection (c) removes it in one case: “A benefit is not payable under this section if an annuity based on the same service with the subdivision is payable under this subtitle.” After retirement, a separate rule applies: “a lump-sum death benefit is payable in an amount, if any, by which the amount in the person’s individual account in the employees saving fund on which the annuity was computed exceeds the amount of annuity payments made.”

A member with enough service has a second route. Section 844.407(a) says an eligible member “means a member who has four or more years of credited service with one or more subdivisions that are participating in the retirement system.” Subsection (b): “Instead of any other benefit allowed under this subtitle other than an optional group term life benefit, an annuity described by this section may be paid on the death of an eligible member who had not filed an application for retirement or whose application for retirement had been revoked or canceled under Section 844.005.” Subsection (c): “An annuity under this section is payable to the valid beneficiary designated on the unrevoked form most recently executed by the member and filed with the system naming a beneficiary. If no valid beneficiary exists or if the member died without having designated a valid beneficiary, the annuity is payable to the deceased member’s surviving spouse or, if no surviving spouse exists, to the deceased member’s estate.”

What this page could not settle

• The Act defines a vested member in section 841.001(19); a vested member “means a member who may withdraw from employment with all participating subdivisions, leave the member’s accumulated contributions on deposit with the retirement system, and, on meeting the age and length-of-service requirements for service retirement, file an application for retirement and begin to receive a service retirement annuity.” The years it takes depend on which of the eligibility rules above applies to you.
• Which options, COLA, lump sum and eligibility rules your own employer adopted are in your employer’s plan. The Act sets the range for the matching ratio, section 844.704(a): “The governing body of a subdivision shall select a percentage for determining multiple matching credits of zero or any percentage that is a multiple of five percent and that does not exceed 150 percent.” Section 843.402(b) describes the credit: “Multiple matching credit is a monetary amount credited by the governing body of a subdivision to be computed at a member’s effective retirement date and, together with any prior service credit, used in determining a member’s supplemental annuity. Multiple matching credit is an amount equal to a percentage of the sum of employee contributions in a member’s individual account that were made for a particular calendar year and the interest accumulated on those contributions as provided under this subtitle.” The ratio your employer chose is in its plan.
• The Act states a general interest rate in section 845.314: “Unless this subtitle expressly states another specified rate of interest, for periods beginning after December 31, 1996, the annual rate of interest is seven percent.” Section 845.306(c) says: “On December 31 of each year, the retirement system shall credit to each member’s individual account interest as allowed by this subtitle on the amount of accumulated contributions credited to the member’s account on January 1 of that year.” This page does not state the rate TCDRS credited to member accounts in a given year; ask TCDRS.
• The size of the reduction for each optional annuity is not stated as a percentage; it depends on your age and your beneficiary’s. Section 841.001(1) says an actuarial equivalent “means a benefit that, at the time it is begun, has the same present value as the benefit it replaces, based on seven percent annual interest and either: (A) the mortality table published by the Conference of Actuaries in Public Practice and known as the UP-1984 table with an age setback of five years for retired or disabled annuitants and an age setback of 10 years for beneficiaries, with a 30-percent reserve refund assumption for the standard benefit; or (B) a mortality basis adopted under Section 845.110(c).”
• The Act read is the 2023 edition published by TCDRS; any later amendment is not reflected.

Common mistakes

• Taking the lump sum without asking what the monthly benefit falls to, for you and for a survivor.
• Waiting past the last day of the month the first payment is made and then learning the election is final.
• Withdrawing contributions on leaving an employer and not realizing the service credit for that employer is cancelled.
• Letting the lump sum be paid to you and absorbing the 20 percent withholding instead of arranging a direct rollover.
• Assuming a COLA, lump sum or buyback exists. Each is an employer choice.

Related on this site: Texas retirement taxes, TRS Texas retirement decisions, a different system, TMRS retirement decisions, the municipal system, pension lump sum versus monthly annuity and public pension retirement decisions by system.

Sources

• TCDRS, Taking a Lump-Sum Payment at Retirement (brochure, 04/23): tcdrs.org brochure (PDF)
• Texas County and District Retirement System Act, 2023 edition (TCDRS): tcdrs.org Act (PDF)
• IRS, Topic no. 413, Rollovers from retirement plans (irs.gov): irs.gov Topic no. 413
• IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (irs.gov): irs.gov Topic no. 558

Sources: the primary documents linked above, read on October 2, 2026. General information from each system’s own published materials, not legal, tax or financial advice. Your own member statement and the system’s current rules decide your benefit, and a pension counsellor at the system or a fee-only adviser is the right place to confirm anything consequential.