Defined Contribution Plan Casual Savings:

Q. One of my students is leaving the University. Is there any way to get the money he has accrued in the DCP account?

A. We have posted access instructions in the Student Employee Area HERE. Please direct your students there or we can email the individual an instruction page.

******For more explanation read further******

Taxes and how they affect DCP:

Previous to January 1994, you could receive a refund of all of your DCP money and not have any taxes withheld (presently 20% applied to Federal taxes) and you would have 60 days to "Rollover" these monies into a "Rollover IRA." Now if you did not "Rollover" these monies within 60 days, these monies became taxable to both Federal and State as ordinary income. Now not only will you pay taxes on these monies, but the IRS is going to Penalize you 10% and the Franchise Tax Board will penalize you 2½% (if you are under age 59½).

Lets say that a student was paying into DCP and received a refund of $10,000. We will also assume that they are in the 15% Federal tax bracket and the 5% state tax bracket. If we add the penalties 10% and 2½ % and the 20% in taxes, we come up with almost 1/3 paid for taxes and penalties. A lot of people do not realize that these monies are taxable and subject to penalties. But as we can see in this situation our student will have to pay $3,250.00 in taxes and penalties. Previous to January 1994, their was no mandatory 20% withholding on withdrawals like we have now. But you can see even with the 20% withheld this student would still owe $1,250.00 in taxes and or penalties.

The bad news about this law change is that 20% will automatically be withheld if the check is made out to the employee. Previously, you could hold onto the money for up to 60 days and then make your decision.

So as you can see, on any check made out to an employee:

• 20% will automatically be withheld by IRS
• 10% will be penalty from IRS
• 2½% penalty from Franchise Tax Board
• and All income subject to Federal and State income taxes.

Q. Why do students have to pay this?

A. If a student is working at the University and has incidental employment and is carrying a substantial course load they would not be subject to Social Security Tax.

Q. What is a substantial course load and incidental employment?

A. We have come to an agreement with the IRS on this and have decided that an appointment of 50% or less and 12 units or more would avoid this tax during the academic year. During the summer sessions, and appointment of 50% or less and 6 units or more each session would avoid this tax.

Q. Why DCP and not Social Security?

A. Social Security has a matching expense to the University (or the state if 19900 funding). So for every penny that an employee pays to Social Security their employer has to match. DCP does not have a matching expense it is paid a rate of return of about 6.25% out of a savings investment pool (no cost to the University).

Q. Is this fair to the Student?

A. If a student worked anywhere other that the University they would have to pay Social Security taxes. This is money that does not reduce your taxable income when it comes out of your check and is not eligible for a refund at the time of separation. Many people do not believe that Social Security will be able to offer the same type of benefits in the future that DCP presently offers.