Your contribution and any interest that you receive from your account are subject to federal tax income (with exception of any contribution made prior to January 12, 1988). When processing a refund of your retirement contributions the Retirement Office is required to withhold 20% of the taxable portion of your refund for federal tax. The 20% tax payment is required only if the refund is made directly to the member. To defer tax payments, you must make a direct rollover of your retirement funds to an Individual Retirement Account (IRA), or another type of retirement account with a financial institution. With a direct rollover, no tax is withheld and the entire portion of your refund is transferred. If you have both taxable and nontaxable contributions you may accept receipt of the nontaxable refund without tax consequence and the taxable portion maybe rolled over.