DROP payout options: lump sum, rollover or both

How you get your DROP money

Your DROP accumulation is paid as a lump sum (20% withheld for federal taxes), a direct rollover to an eligible retirement plan, or a combination. [FRS 2026 DROP Guide, p.9]
If you don't choose a method within 60 days after DROP ends, the division issues a lump sum and withholds 20%. [FRS 2026 DROP Guide, p.10]
Eligible rollover destinations include IRAs (including a Roth IRA), individual retirement annuities, 401(a)/401(k)/403(b) plans, 403(a) annuities and 457 plans. [FRS 2026 DROP Guide, p.24]
Rollovers defer taxes until you withdraw; a lump sum is taxed as income in the year paid, and you may owe an extra 10% early-withdrawal tax unless you leave DROP in or after the year you turn 55 (50 for eligible public safety officers). [FRS 2026 DROP Guide, p.11]
After-tax contributions in your DROP account are paid to you tax-free and cannot be rolled over. [FRS 2026 DROP Guide, p.24]