TMRS Retirement Options: Payment Options, Partial Lump Sum, Refund

Updated October 2, 2026. Quick answer: A Texas Municipal Retirement System (TMRS) member chooses among three benefit options at retirement: Retiree Life Only, which pays the most each month and no monthly benefit to a survivor (unrecovered contributions are refunded, section 854.502 of the Government Code), Retiree Life and Survivor, and Retiree Life and Guaranteed Term. After the first payment the option and beneficiary generally cannot be changed. A partial lump sum of 12, 24 or 36 times the Retiree Life Only monthly benefit permanently lowers the monthly benefit. A vested member who takes a refund forfeits the lifetime benefit and the city’s matching funds.

The three benefit options

TMRS says: “When you retire, you will choose from three benefit options. Each will pay you a monthly benefit for the rest of your life.”

The sources put it this way. Retiree Life Only: “The Retiree Life Only option provides you with a monthly retirement benefit for life, but all payments cease the month after you die. This option provides the largest monthly benefit.” Survivor: “Your beneficiary’s monthly benefit will be equal to 50%, 75% or 100% of your monthly benefit depending on which percentage you choose at retirement.” Guaranteed term: “If you die before that term ends, your beneficiary will receive your benefit for the remainder of the term. If you die after that term ends, there will be no beneficiary benefits.” “The payment term can be either 5, 10, or 15 years and begins when you retire.”

For a guaranteed term the Government Code sends the remaining payments to the beneficiary or, failing one, the estate (section 854.104(c)(3) for 120 payments): “if the retiree dies before 120 monthly annuity payments have been made, the remainder of the 120 payments are payable to the retiree’s beneficiary or, if one does not exist, to the retiree’s estate”.

Section 854.502(a) refunds unrecovered contributions: “If monthly payments of any standard service retirement annuity under Section 854.103, optional service retirement annuity under Section 854.104, standard disability retirement annuity under Section 854.304, optional disability retirement annuity under Section 854.305, standard occupational disability retirement annuity under Section 854.408, or optional occupational disability retirement annuity under Section 854.410 cease before the sum of all payments of the annuity equals or exceeds the amount of accumulated contributions credited to the member’s individual account at the time of retirement of the member on whose service the annuity was based, a lump-sum benefit equal to the amount by which the amount of the accumulated contributions exceeds the sum of all payments made by reason of the annuity is payable: (1) to the designated beneficiary, if living, or if not living, to the estate of the designated beneficiary, if the designated beneficiary survived the retiree; or (2) to the estate of the retiree, if the designated beneficiary predeceased the retiree.”

How final the choice is

The Member Benefits Guide: “Once you receive a monthly benefit payment, you cannot change your benefit option or beneficiary except as described below.” The cut-off is set by section 854.004(a): “A retiree may change the retiree’s choice of retirement annuity payment plans or the designation of beneficiary after the retiree’s effective date of retirement by filing written notice with the board of trustees before the later of the date on which the retirement system makes the first payment or the date the first annuity payment becomes due. After the first payment has been made by the retirement system or has become due, a retiree may not change the annuity payment plan selected and may not change the designated beneficiary except under Section 854.006.” One exception is marriage after retirement: “you must do so before the first anniversary of your marriage and can do so only one time.” A married member’s spouse has a say: “you choose a retirement option other than Retiree Life and Survivor or name a beneficiary other than your spouse, your spouse must consent.” Two limits on those statements come from the Government Code. The marriage exception is scoped by section 854.107(a), which covers a retiree who marries after retirement and had chosen a straight life or a guaranteed term annuity, and by section 854.108(a), which covers a joint and survivor retiree whose beneficiary died before the retiree. A guaranteed term retiree can also change the beneficiary (section 854.006(a)): “A retiree who is receiving payments of an annuity for the retiree’s life but with payments to continue if the retiree dies until a determined number of payments have been made may, with the consent of the retiree’s spouse if there is one, revoke any existing selection and designation of beneficiary nominated to receive any monthly payments that may become due under the annuity after the retiree’s death and may select a new beneficiary to whom the monthly payments are to be made.” For the general pattern across plans, see lump sum versus monthly annuity.

A joint and survivor retiree whose beneficiary dies first returns to the larger amount (section 854.104(g)): “If a person who retires after August 31, 1997, elects a reduced retirement annuity that is payable until the death of the last to die of the retiree and a person designated under Subsection (e), and if the retiree survives the other person, the monthly payments to the retiree will be increased to the amounts that would have been payable if the retiree at the time of retirement had elected to receive an annuity payable only during the retiree’s life, and adjustments had been made for any applicable postretirement increases in that benefit.”

The partial lump sum

At retirement the Guide says “When you retire, you can receive a partial lump sum distribution (PLSD) from your retirement account”, in an amount “equal to 12, 24, or 36 times the Retiree Life Only monthly benefit.” The ceiling: the lump sum “cannot exceed 75% of your member deposits and interest.” The cost is a smaller check for life: “The lump sum is then deducted from the total amount used to calculate your monthly payment, and a new, reduced monthly payment is determined.” “A PLSD will reduce your and any beneficiary’s monthly retirement benefit.” The eligibility condition is in section 854.008(a) of the Government Code: “A member who is eligible for service retirement and who terminates employment with all participating municipalities may apply for a partial lump-sum distribution under this section.”

A computed example from an assumed Retiree Life Only benefit of $2,000 a month, not a TMRS figure: 12 times that benefit computes to $24,000 and 36 times computes to $72,000. The 75 percent ceiling on member deposits and interest applies to the lump sum, and the reduced monthly benefit is calculated by TMRS from your own account, so it cannot be computed here.

Tax: “The Partial Lump Sum Distribution is subject to income tax and possibly an additional 10% tax penalty at the time of payment”. “You can roll over the partial lump sum payment into an IRA or other qualified plan to continue to defer any income tax payments.” “Federal income tax law requires TMRS to withhold 20%” unless the sum is rolled into an eligible retirement plan. See also the 20 percent withholding rule.

Leaving: refund or vested benefit

A refund returns your own money only: “refund your personal contributions and the interest credited to your account. Your refund does not include any city matching funds.” For a vested member the cost is stated: “you will forfeit forever the opportunity to receive a lifetime retirement benefit.” Refunding is optional: “If you are vested , you can leave your contributions in your TMRS account, and they will continue to earn 5% interest each year until you retire.” A member who is not vested has a clock: “If you are not vested , you can leave your contributions in your TMRS account for up to five years”. The statute states the withdrawal condition in section 852.103(a): “A living person who is not an employee of a participating department and who has not retired may, after application, withdraw all of the accumulated contributions credited to the person’s individual account, and the retirement system shall close the account.” It ties the clock to membership in section 852.104(a)(4), under which membership ends by absence from service for more than 60 consecutive months, and section 852.104(c) excepts some cities: “If a member of the retirement system is an employee of a participating department of a municipality that, as provided by this subtitle, allows a person to terminate employment and remain eligible for retirement after accumulating a specified amount of credited service, and if the person meets the requirement, the person may terminate employment and is not subject to loss of membership because of absence from service.”

Mechanics: “TMRS cannot issue a refund until we receive your final TMRS city contribution, which can take up to eight weeks.” “If you return to work for a TMRS participating city before your refund is issued, your refund application will be cancelled.” Tax: “You can defer paying income tax on your refund by rolling it into an IRA or other qualified plan. If you don’t, the IRS requires TMRS to withhold 20% of your refund.” “you may incur an additional 10% tax unless you qualify for an exception available to certain public safety employees.” TMRS closes its refund page with advice: “you should consult with a financial or tax advisor before you decide to do so.”

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 TMRS’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”. TMRS says a rollover into an IRA or other qualified plan defers the tax. 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.

Buying back and adding service credit

A member who refunded and returned may be able to buy the credit back: “To buy back service credit, you must pay your refunded amount plus interest in a lump sum.” “you must have 24 consecutive months of service with the city to be eligible to buy back your service credit.” “you must be employed with the city at the time the city adopted the buyback provision.” The Government Code, section 853.003, requires a city ordinance and sets the price: “An eligible member who has withdrawn contributions and canceled credited service in the retirement system may reestablish the canceled credit in the system if the governing body of the municipality that currently employs the member by ordinance authorizes reestablishment of the credit by eligible employee members.” “A member may reestablish credit 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.”

Military service is a separate route: “if you work for a participating city that provides military service credit, you can receive service credit for up to 60 months of your military service.” “you must be re-employed by your city within 90 days of your release or discharge from active duty” Under USERRA, “You have up to three times the length of your military service but not more than 60 months after your release or discharge to make these contributions.” Cities can also grant earlier service: “Restricted Prior Service Credit is credit for previous full-time employment with certain other public employers.” Be careful with it: “If you terminate your TMRS membership before you retire, any Prior Service Credit you received will become void.” On what military credit is worth, section 853.505(a) says “The retirement system shall use military service credit established under this subchapter in determining length-of-service requirements for benefits.” and section 853.505(b) says “Except as provided by Section 853.506, military service credit allowed under Section 853.501 shall have no monetary value in calculating the annuity payments allowable to the member and shall not be used in other computations, including computation of updated service credits or prior service credits.”

The pension buyback calculator on this site, pension buyback calculator, tests whether a purchase recovers its cost.

Vesting, eligibility and the city’s choices

TMRS plans are set city by city. “Most cities require five years of service credit to vest, but a few require 10 years.” “You become eligible to retire at age 60 with either five or 10 years of service, or at any age with 20 or 25 years of service, depending on your city’s plan.” The general rule in the Government Code, section 854.102(a), is stricter than those city routes: “A member is eligible to retire and receive a service retirement annuity, if the member: (1) is at least 60 years old and has at least 15 years of credited service in the retirement system; or (2) has at least 28 years of credited service in the retirement system.” Subsections (b) to (h) add routes for cities with the participation dates or ordinances they name, including age 50 with 25 years in (b). Contributions: “That contribution will be either 5%, 6%, or 7% of your compensation, depending on your city’s retirement plan provisions.” Section 855.401(a), last amended by Acts 2025, 89th Leg., R.S., Ch. 433 (H.B. 3161), effective September 1, 2025, reads: “The municipality shall elect a rate of five, six, seven, or eight percent of the employees’ compensation.” On the account, TMRS says: “Your contributions are credited to your TMRS account and earn 5% interest each year you remain a member.” At retirement: “When you retire, your city will match your member contributions and interest at a rate chosen by your city. The rate will be 1:1, 1.5:1, or 2:1.” Cost-of-living adjustments are optional: “Your city may provide retirees and their beneficiaries with a cost-of-living adjustment (COLA) that increases your monthly retirement benefit.” “A city’s COLA may either be 30%, 50% or 70% of the change in the CPI.” “COLAs are effective in January, and you must be retired for 13 months from a city that provides a COLA for you or your beneficiary to receive it.” The code computes the increase in section 854.203(b): “The amount of annuity increase under this section is computed as the sum of the prior and current service annuities on the effective date of retirement of the person on whose service the annuities are based, 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 effective date of the ordinance providing the increase; and (2) 30 percent, 50 percent, or 70 percent, as specified by the governing body in the ordinance, except that if the governing body has specified a different percentage in an ordinance adopted under Section 853.404(c) and in effect on December 31, 1999, the percentage used in computing annuity increases for retirees of that municipality remains in effect until changed or discontinued under Section 853.404.”

Section 854.203(e) adds a limit on any increase: “If a computation under Subsection (b) does not result in an increase in the amount of an annuity, the amount of the annuity may not be changed under this section.”

A small account is paid differently: “TMRS must pay you that amount in a lump sum. You will not receive a monthly retirement benefit.”

What this page could not settle

• Which options, matching ratio, COLA and vesting your own city adopted is in your city’s plan, not in the Guide; the figures quoted are the allowed choices.
• The Member Benefits Guide read is dated December 2023; the web pages read are current, and where they differ the web page controls.
• Whether a city’s plan description adds a condition to the partial lump sum is not stated in the TMRS pages read; section 854.008 of the Government Code states its conditions and names no city ordinance.
• The TMRS pages read do not state the final date for electing a benefit option. Section 854.104(e) of the Government Code says: “To select an optional service retirement annuity, a member or retiree must make the selection and designate a beneficiary on a form prescribed by and filed with the board of trustees before the 31st day after the effective date of retirement.” Section 854.003(a) fixes the effective date: “Except as provided by Subsections (b) and (d), the effective date of a member’s service retirement is the date the member designates at the time the member applies for retirement under Section 854.101, but the date must be the last day of a calendar month and may not precede the date the member terminates employment with all participating municipalities.”
• TMRS’s supplemental death benefit and disability retirement are out of scope.

Common mistakes

• Choosing Retiree Life Only for the larger check without asking what a surviving spouse would live on. It pays no monthly benefit after you die, though unrecovered contributions are refunded.
• Taking a partial lump sum without seeing the permanent reduction to the monthly benefit for you and any beneficiary.
• Refunding a vested account and forgetting that city matching funds are not part of the refund.
• Letting the refund get cashed instead of rolled over and absorbing the 20 percent withholding.
• Assuming your city offers a COLA or the buyback provision. Each is a city choice.

Related on this site: Texas retirement taxes, pension lump sum versus monthly annuity, public pension retirement decisions by system and whether a pension annuity can be rolled over.

Sources

• TMRS Member Benefits Guide, December 2023 (Texas Municipal Retirement System): https://www.tmrs.com/uploads/files/general/down/pubs/TMRS_Member_Benefits_Guide.pdf
• TMRS, Ready for Retirement: https://www.tmrs.com/ready-for-retirement
• TMRS, Refunding Your Account: https://www.tmrs.com/refund-your-account
• IRS, Topic no. 413, Rollovers from retirement plans (irs.gov): https://www.irs.gov/taxtopics/tc413
• IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (irs.gov): https://www.irs.gov/taxtopics/tc558

Sources: the primary documents linked above, read on October 2, 2026; the Texas Government Code sections named on this page (Title 8, Subtitle G, chapters 851 to 855, statutes.capitol.texas.gov, current through the 2025 legislative sessions) were read on October 24, 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.