To withdraw money from the Alabama Retirement System, you have to permanently leave every job covered by the Retirement Systems of Alabama and then file a notarized Form RSA-7 to request a refund of your contributions. There is no loan option, no hardship withdrawal, and no partial distribution while you are still an active member of the Employees’ Retirement System (ERS) or Teachers’ Retirement System (TRS). A refund pays back what you put in plus interest, and in exchange you give up all of the service credit you have earned toward a future pension.
When You Are Allowed to Withdraw
Alabama law only allows a refund after your separation from RSA-covered employment is final and your last contribution has been deposited.1Alabama Legislature. Alabama Code Title 36-27-16 – Retirement, Etc. Moving from one RSA-covered employer to another does not qualify. You have to leave the system entirely.
While you are still working for a participating agency, your money stays put. The RSA does not offer loans against your account, hardship withdrawals, or any partial payout before retirement. The only pre-retirement access is a full refund after termination.
What You Get Back, and What You Give Up
A refund pays you the total employee contributions in your account plus accumulated interest. It does not include the employer-funded portion of your pension, which stays with the system.
Taking the refund permanently cancels your service credit. That means you lose eligibility for a lifetime monthly pension, any survivor death benefits tied to your membership, and any progress toward vesting or retirement age. Tier 2 members become vested after 10 years of creditable service.2The Retirement Systems of Alabama. TRS Tier 2 Member Handbook If you have fewer than 10 years and know you will not return to Alabama public employment, a refund is the only way to recover your contributions. If you are already vested, a refund means walking away from a pension you have already earned.
How to File Form RSA-7
The refund application is called the Notice of Final Deposit and Request for Refund, or Form RSA-7, and you can download it from the RSA website.3Retirement Systems of Alabama. Notice of Final Deposit and Request for Refund The form asks for:
- Your Social Security number or PID number
- Date of birth
- The name of your last employing agency
- Your last day worked and your last paycheck date
- Direct deposit information (routing and account number) if you want the funds sent electronically
- A tax election: take the funds directly, or roll them into another retirement account
If you leave the direct deposit section blank, the RSA mails a paper check to the address on file.
Notarization
Your signature on Form RSA-7 has to be notarized before you submit it.4Retirement Systems of Alabama. Notice of Final Deposit and Request for Refund Banks, courthouses, and shipping stores typically offer notary services, and Alabama caps notary fees at a few dollars per signature. Submitting the form without notarization will delay the refund.
Where to Send It
Mail the completed, notarized form to the RSA headquarters in Montgomery, and note on the envelope whether your account is with ERS or TRS so it reaches the right division.5The Retirement Systems of Alabama. Contact Us
Retirement Systems of Alabama
P.O. Box 302150
Montgomery, Alabama 36130-2150
The RSA Member Online Services portal lets you track your account, but the refund itself requires the original signed and notarized paper form by mail. The RSA also cannot finalize your refund until your former employer submits a final monthly report confirming your termination date and last contribution. That employer step often controls how fast the process moves.
How Long It Takes and How You’re Paid
Once the RSA has both your completed form and your employer’s final report, expect roughly 30 to 60 days of processing while the agency reconciles your account history and interest.6Retirement Systems of Alabama. Deferred Retirement Option Plan Termination of Employment Packet If your employer is late submitting its final payroll report, the timeline can stretch beyond two months.
Payment goes to the bank account listed on your application, or by paper check if you did not provide banking details. The RSA sends a confirmation notice when payment is authorized; that notice is your record of the account closure and the total distribution.
Federal and Alabama Taxes
An RSA refund is a taxable distribution under federal law. If the money is paid directly to you instead of rolled over, the RSA must withhold 20 percent for federal income tax before sending the balance.7Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules That 20 percent is mandatory on any eligible rollover distribution paid directly to the participant.
The 10 Percent Early Distribution Penalty
If you are younger than 59½ when you receive the refund, the IRS generally adds a 10 percent tax on top of the regular income tax. A key exception applies to members who leave employment during or after the year they turn 55; they can take the distribution without the 10 percent penalty. For qualified public safety employees of a state or local government, such as law enforcement officers and firefighters, that age drops to 50.8Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Other exceptions that may apply include total and permanent disability, a qualified domestic relations order in a divorce, an IRS levy on the account, and unreimbursed medical expenses over 7.5 percent of your adjusted gross income.8Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions If none of these apply and you are under 59½, factor the 10 percent penalty in before choosing a cash payout over a rollover.
Alabama State Tax
Alabama exempts retirement allowances, pensions, annuities, and optional allowances paid by TRS and ERS from state income tax.9Alabama Administrative Code. Alabama Administrative Code Chapter 810-3-19 – Exempt Retirement Allowances That exemption clearly covers monthly pension payments. Whether it also covers a lump-sum refund of contributions is less explicit in the regulation, so if you are taking a large refund, asking a tax professional how Alabama will treat it is worthwhile. State rates run from 2 to 5 percent, so the state tax exposure is modest compared with the federal side.
Rolling It Over Instead
You can avoid both the 20 percent withholding and the 10 percent early distribution penalty by directing the RSA to roll your refund into an eligible retirement account. On Form RSA-7, you elect a direct rollover instead of a cash payout, and the RSA transfers the funds straight to your chosen account with no tax withheld at the time of transfer.7Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
Eligible destinations include:
- A traditional IRA. The rolled amount is not taxed until you withdraw it. Withdrawals from the IRA before 59½ are still subject to the 10 percent penalty unless an exception applies.
- A Roth IRA. You can roll into a Roth, but you owe income tax on the pre-tax portion in the year of the rollover. The 10 percent penalty does not apply at the time of the rollover, though early withdrawals from the Roth within five years may trigger it.10IRS.gov. Safe Harbor Explanations – Eligible Rollover Distributions Notice 2026-13
- A new employer’s 401(k), 403(b), or governmental 457(b) plan, if it accepts rollovers.
If you don’t need the cash right away, a direct rollover usually comes out ahead: it preserves the tax-deferred status of your savings and avoids the 20 percent withholding.
Buying the Service Back If You Return
If you take a refund and later return to an RSA-covered employer, you can restore the canceled service credit, but you first have to complete at least two years of contributing service in your new position before you’re eligible to buy it back.11The Retirement Systems of Alabama. TRS Member Handbook
The price is the full amount you withdrew plus 8 percent compound interest from the date of withdrawal to the date of repayment, paid as a lump sum before you leave employment again.12The Retirement Systems of Alabama. TRS Purchasable Service Credit Because the interest compounds, the cost climbs quickly: a $30,000 refund would run roughly $46,000 to restore after six years. Ask the RSA for an official calculation of your buyback cost before deciding whether a refund is worth taking in the first place.