What is the penalty for cashing out state pension contributions?

I'm currently employed by the state of Massachusetts but have just been offered a job in the private sector.

I have been contributing to the state pension fund for eight years but will not be vested (that requires 10 years in the system) so my contributions will be returned to me.

I'm told that you can either roll that money into a 401k or take a cash payout but that if you take the cash you pay a substantial penalty in addition to applicable taxes.

Does anyone know how much of a penalty you have to pay? Or for that matter, at what rate it gets taxed? I would ask HR but don't want to tip them off to the fact that I might be leaving.

HR wouldn't know much about taxes anyway.

If your plan is a defined contribution plan then taking an early distribution is taxed a ordinary income plus a 10% penalty tax plus whatever MA does to you.

The 10 year vesting rule doesn't sound right though. Under ERISA, pension plans must vest in 5 years or less. If your state pension plan is different it might be worth sticking it out until you are fully vested depending upon how much money you're talking about. But whatever you do, roll it over into an IRA to avoid a massive tax bill.

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