Many Retirement System members take advantage of our loan program. However, before applying for a loan, you should be aware of the possible tax consequences and how loans can affect your pension. For your specific loan-related information, including loan eligibility, repayment amounts and current loan balances, call our 24-hour automated information line toll free at (866) 805-0990 or (518) 474-7736 within the Capital District area.

Q: I have a small loan balance from a previous loan and want to take out an additional loan. Will my new loan be taxable?

A: Your loan will be taxable if the loan amount exceeds limits set by the federal government. If you have a loan with a deferred compensation (457) or tax-sheltered annuity (403-b) plan through your current employer, we must take that loan balance into consideration when we calculate the taxability of your Retirement System loan.

If your loan is taxable, you must include it on your federal income tax return for the year the loan is granted. If you are younger than 59 1/2 at the time the loan is granted, you may be required to pay a 10 percent penalty in addition to any ordinary federal income tax you owe.

You can call our automated information line to determine if your loan will be taxable. Before applying for a taxable loan from the Retirement System, please consult a tax adviser.

Q: I am applying for a loan and don't know whether to choose multiple or refinanced. What's the difference?

A: In most instances, choosing to refinance your existing loan will result in a higher amount being subject to federal income tax. However, your minimum repayment amount will be less under the refinanced option than with the multiple loans.

If you choose multiple loans, you will be taking out a new, separate loan in addition to any existing loans. Although separate payments will be applied against each outstanding loan, the total of the repayment amounts is taken from your paycheck in one payroll deduction. The minimum repayment amount is higher for multiple loans. However, if your loan(s) are taxable, choosing multiple loans will reduce, or eliminate, your tax liability.

To find out which loan option is best for you, call our automated information line before submitting your application.

Q: What happens if I have an outstanding loan balance when I retire?

A: You cannot make loan payments once you retire. If you have an outstanding balance when you retire, it will permanently reduce your retirement benefit, and at least some portion is almost always reportable as ordinary income (subject to federal income tax).

To avoid a permanent reduction, you can increase the amount of your loan repayments or send in additional lump sum payments so your loans are paid before retirement.

Q: Is there a fee for taking out a loan?

A: There is a $20 service charge to process a member's loan application. The service charge is deducted from the total amount of the loan check you receive.

Q: How can I get more information?

A: See the section of our Web site on "Loans: Getting One and Paying it Back" at www.osc.state.ny.us/retire/members/loans.htm.