11 Replies Latest reply on Mar 4, 2016 9:30 PM by Frugal12

    How to add TIAA Traditional withdrawals into retirement and budget planning

    Frugal12

      My husband and I have figured out  our current budget, our planned retirement budget, etc. . So we have a plan for how much we will need once we retire - and also have an emergency fund equal to 6 months of income- because we've discovered that financial surprises,large or small, do come along,

       

      We get confused when we try to plan our retirement budget and factor in the required minimum distributions for TIAA Traditional. We were told that when we reach 70 and  1/2  that  we must take  at least 10 percent a year from our account and that all the money must be removed-or moved to another  fund- within 10 years. Those are the rules and I have checked them repeatedly.


      But  if I'm wrong I'd sure like to know that.

       

        Our  budget will be tight in retirement and so we  plan to save as much as possible till RMDs are required,..assuming my husband can hold out to 70 ( as he plans).. Few other  guaranteed interest investments match  TIA Traditional, especially with the employer match . However, we are now using equities until we reach our desired balance.


      But how do we factor  money we don't yet have into our retirement budget ? One advisor told it is already part of our total assets but that doesn't make sense to me if we can't touch it now (without paying a significant  penalty).


      We may need the income or we may be lucky enough to be living on a budget where we can invest some of the funds, We simply don't know. All we do know is that we need  to fit the withdrawals into our retirement budget.

       

       

       

       

        • Re: How to add TIAA Traditional withdrawals into retirement and budget planning
          JerryD

          You say: "We get confused when we try to plan our retirement budget and factor in the required minimum distributions for TIAA Traditional. We were told that when we reach 70 and  1/2  that  we must take  at least 10 percent a year from our account and that all the money must be removed-or moved to another  fund- within 10 years."


          I am no expert on TIAA plans, but this does not sound right to me. The 10 year withdrawal sounds like a Transfer Payout Annuity (TPA) that you must request. Have you set one up or does your employer require one at 70 1/2. I have never heard of the latter but then I do not know your plan.


          You sound like you may be confusing Required Minimum Distributions (RMD) which are required at 70 1/2 for some plans like IRA's. Do you have IRA's? If you have a 403b plan I thought that most allow you to wait until an older age before RMD's are required.


          You also then state: "But how do we factor  money we don't yet have into our retirement budget ?"


          It sounds to me like you are trying to have your income drive your budget. I advise that you create a retirement budget based on your current expenses and any adjustments due to unneeded work expenses. Once you have a realistic retirement budget then look at income like Social Security, RMD's, savings, pensions, etc to fund your budget. Any excess from these sources beyond your budget can be put into savings for a rainy day or re-invested if large.


          One thing that I might suggest is that you try to live on your retirement budget until you have to retire. You can add in any necessary work expenses until retirement.


          One other suggestion that I have is that you go over to the TIAA-CREF forum on www.morningstar.com and ask questions of the very helpful participants there that have an enormous understanding of all things TIAA-CREF retirement plans.   GOOD LUCK!!!!   :-))))

            • Re: How to add TIAA Traditional withdrawals into retirement and budget planning
              JerryD

              PS: I had some comments on how we created a retirement budget at the following thread that might be of use: Tips on how to thrive—not just survive—in retirement

              • Re: How to add TIAA Traditional withdrawals into retirement and budget planning
                Frugal12

                I'M WRITING THIS IN CAPS  BECAUSE THE PRINT LOOKS SO SMALL. YES, I KNOW IT SOUNDS CRAZY BUT I WAS TOLD REPEATEDLY BY SEVERAL DIFFERENT TIAA-CREF REPRESENTATIVES THAT THE MONEY MUST ALL BE TAKEN FROM THE FUND WITHIN 10 HEARS AND THAT IT MUST BE REMOVED AT 10 PERCENT A YEAR.

                 

                YOU ARE RIGHT ABOUT TRYING TO HAVE INCOME DRIVE BUDGET.. WE DO HAVE A VERY CLEAR BUDGET OF REQUIRED EXPENSES AS WELL AS EXPENSES THAT  WILL DISAPPEAR WHEN WORK STOPS ( THE LONG COMMUTE AND ALL THAT GAS, ETC). WE ARE ALREADY TRYING TO LIVE ON OUR RETIREMENT BUDGET BUT AN UNKNOWN AND POSSIBLY EXPENSIVE ITEM  WILL OCCUR IN 2 YEARS- OUR SPECIAL NEEDS SON WILL BE TOO OLD TO BE ON HIS FATHER's HEALTH INSURANCE. HE WORKS BUT  ONLY PART-TIME AND WE ALREADY KNOW WHAT WE USE TO HELP SUPPORT HIM NOW.

                 

                I"VE ALREADY STARTED PRICING HEALTH PLANS FOR HIM AND THEY  ARE SCARY EXPENSIVE. OTHER THAN THAT, OUR BUDGET IS FINE BUT TIGHT.

                 

                THANKS FOR BOTH OF YOUR REPLIES AND SORRY IF MINE LOOKS LIKE I AM SHOUTING. I JUST COULD NOT SEE THE SMALL PRINT VERY WELL AS I TYPED  AND DIDN't "T KNOW HOW TO ADJUST IT.,

                  • Re: How to add TIAA Traditional withdrawals into retirement and budget planning
                    JerryD

                    About the small type size, I have an Apple Mac so it might not work for you, but I can hit Ctrl + together to enlarge print. My Firefox browser also has a menu in the upper right corner that allows one to increase type size. If this doesn't work, I always use Google to get these settings for my PC and/or browser. Start with something in the search box like: "firefox enlarge type"

                     

                    I am not associated with TIAA-CREF nor am I a college professor, but I have for years dealt with my TIAA-CREF plan, including doing a Transfer Payout Annuity (TPA) over 10 years while converting my TIAA Account to an IRA. The 10 years that you keep bringing up just smacks of a TPA. The only other thing that comes to mind that would necessitate a 10 year (MINIMUM) payout might be some kind of 10-Year annuity (or possibly some kind of systematic withdrawal). 

                     

                    I STRONGLY recommend that you PLEASE visit the folks at the morningstar.com TIAA-CREF forum and present your circumstances there. Many, many there are very smart university professor types who, obviously, love to teach and drill down on topics like this with a true interest and knowledge. These folks know all sorts of TIAA-CREF plans backwards and forwards and if they don't know will provide expert advice on how to extract an official and accurate TIAA-CREF answer for your situation.     GOOD LUCK!!!!!!!   :-)))))

                     

                    PS: Try clicking on the following link to get there: TIAA-CREF Funds

                • Re: How to add TIAA Traditional withdrawals into retirement and budget planning
                  CurtGufe

                  As I understand it, ANY withdrawal from (or transfer of funds out of) TIAA traditional must be done with a 10 year TPA at 10% per year. Obviously, this is not a good way to do RMDs, which are much less than 10% until one is well over 80 years old. The 10% per year will pay it out in 10 years in all cases, while RMDs only require much smaller amounts to be withdrawn from the retirement plan, usually letting the account deplete over 15, 20, or even 25 years depending on its investment returns.

                   

                  I could be wrong about the TPA being the only option. Some employers may allow only TPAs while the employee is still working. Once retired, some plans may allow additional ways to annuitize the TIAA traditional funds. These alternatives would generally include one or two life annuities, with or without a guaranteed amount, and these meet the IRS rules about RMDs. Recently, the IRS has allowed a new delayed annuity called QLAC (Qualified Longevity Annuity Contract) within qualified plans with special RMD rules about them (a quick search of the TIAA website for QLAC found no hits). You would need to inquire with your employer's retirement benefits people or ask TIAA advisors about these possible annuity options within your employer's plan as a way of meeting the RMD on your Traditional TIAA holdings.

                   

                  Again, I don't know the restrictions on your employer's plan, but in nearly all cases you should be able to do a TPA of all or some of your TIAA Traditional but have the funds transferred to your corresponding  tax-deferred annuity non-"traditional TIAA" account (formerly known as CREF accounts) as a direct transfer. In  many 403b and 457b plans at TIAA (formerly known as TIAA-CREF), both a CREF account (which holds shares of variable annuities and CREF mutual funds) as well as a traditional TIAA account are set up for each eligible employee that participates in the retirement plan. If you do not have such an account for holding shares of VAs and MFs, and you cannot start one inside your employer's plan, then another option is to have the annual payout from the Traditional TIAA TPA go to a traditional (rollover) IRA that you set up  with any of a number of possible financial institutions (including TIAA). But the details for doing this option depend on your current age (the age of the account holder) because of RMD rules.

                   

                  There are IRS rules about an RMD each year from each 403b/457b/401k ("qualified retirement plan", in IRS-speak) based on the balance in each qualified plan account at the end of the year. Unlike IRAs, RMDs amounts from  qualified plans cannot be aggregated and taken out of just one account.

                   

                  Because of these IRS rules,  if you are already within 10 years of your first RMD year at 70.5 years old, then there likely is a requirement that at least part of your annual TPA payout be taken as the RMD in the form of cash to your bank account or a taxable investment account. The amount in excess of the RMD amount (calculated for your traditional TIAA account) should be able to be rolled over to an IRA or to another tax-deferred account (i.e., 403b) if the employer's plan governing the 403b allows for such transfers INTO the account. However, that direct rollover must be set up with TIAA when you manage your TPA. In other words, the one payout amount would have to be split and paid to two places (the RMD to your bank/broker and the rest to and IRA or qualified plan). The amount of the split will change every year because the balance in the account is declining annually and because the RMD divisor (years of life remaining) is slowly decreasing (this is set by the IRS).

                   

                  If you can't get TIAA to split the flow of funds from the annual payout into a cash deposit to your bank/brokerage account for your RMD and the rest to an IRA, you can do a regular (non-custodial) rollover of that latter amount. In this case, the full TPA payout amount goes to your bank/broker every year, but you (immediately) transfer the amount in excess of the RMD to an IRA (the account holder name must be the same). There all kinds of difficulties with these non-direct rollovers, however, caused by IRS rules. For instance you can only do one of these per any 12 month period, the cash must be rolled over within a short amount of time (60 days? I'm not sure), etc. Failure to follow the rules in their entirety makes the entire amount of the TPA payout taxable income instead of just the RMD amount. But if you do it right, you get to defer taxes on the amount from the TPA that is in excess of the RMD. That said, the contribution of this amount to an IRA or qualified plan will increase its RMD the following year.

                   

                  Also, you cannot rollover the entire TPA to an IRA (or qualified account that will take it) if the account has an RMD (that is, you are 70.5 or older). The IRS rules state that the first RMD dollars that come out in a calendar year are the RMD and also that RMDs cannot be rolled over to IRAs or other accounts, as they are not eligible to be rolled over. The RMD part must go to a taxable account. Since the TPA makes only one payout each calendar year, you are stuck with that issue.

                   

                  Another alternative is to to take the TPA amount and do a conversion rollover to a Roth IRA of the amount that is in excess of the RMD. You will have the entire TPA payout amount as taxable income for 10 years, but you won't have to pay taxes on any later withdrawal of those Roth conversion amounts or the gains on those investments ever again (under current tax law.)

                   

                  You might love your guaranteed traditional TIAA account as a safe investment, but it does have this one idiosyncrasy in that the only way to get money out of it is the 10 year linear TPA (or possibly a lifetime annuity for those already retired). Because of the confusion it causes with RMDs, it may be the least problematic for you to move all your Traditional TIAA funds out via a single TPA, rather than starting more than one TPA for different amounts, which would be even more confusing and difficult to manage.

                   

                  I agree with the others that you should not let your income drive your budget. If you don't need to use all your RMDs, then put the part you won't use immediately in a taxable brokerage or mutual fund account and invest it.

                   

                  Good luck with this. It is very complicated.

                    • Re: How to add TIAA Traditional withdrawals into retirement and budget planning
                      JerryD

                      Excellent post. It does however point out how very complicated retirement matters can get. Frugal, I again plead that you consult with the very experienced TIAA participants over at morningstar.com to get your TIAA plan understanding(s) upgraded.

                       

                      However, as CurtGufe mentions, you need to talk to the originators of your plan(s). First go to your HR people and insist that they walk you through the plan(s) in detail. This is their job. Then, when you understand your plan(s) and you need help with the implementation details, go to your TIAA contact and insist on a at least one face-to-face meeting to spell out to the level of detail that you are comfortable with each of your withdrawal options. Whatever, you do, do NOT put something in place that you do NOT understand! Such an action may not be reversible and may be totally unusable.   GOOD LUCK!!!!!   :-)))) 

                    • Re: How to add TIAA Traditional withdrawals into retirement and budget planning
                      gasDuster

                      “But if I'm wrong I'd sure like to know that.”  … You are wrong.

                       

                      Read: https://www.tiaa.org/public/pdf/minimum-distribution.pdf

                       

                      I very rarely offer financial advice.  The reason is that so much advice is dependent on an individual’s particular situation.  However, I believe your understanding of how to get money from your Traditional account is inadequate.  This is a complicated situation that really isn’t made any simpler by how TIAA administers the Traditional account (but there is a reason for this complexity – the TIAA account is not designed to be liquid, it is intended to provide long-term retirement income).

                       

                      You do NOT have to take a Transfer Payout Annuity (TPA) once you reach 70 ½.  Another option you have is to take only your Required Minimum Distribution (RMD) which TIAA will calculate for you.  This distribution will be fully taxable and will increase, for a number of years, as you age.   In time the RMD will eat into your principal and hence it does not guarantee a level cash flow, it is not an annuity.  To get an idea of how the cash flow works over time, use a RMD calculator that generates a cash flow report, like the one at: http://www.dinkytown.net/java/RetireDistrib.html

                       

                      The confusion with the advice you got from the TIAA advisers might very well be based on how you ask the question.   If you want to take ALL the money out of your Tradition account at age 70 1/2, you must use a TPA – and it will take 9 years and 1 day to get all of your money transferred out.  However, there are other options (including annuitizing your account) available to you. 

                       

                      You might consider setting up a meeting with a fee-based financial planner to help you understand the RMD rules, tax consequences and cash flow implications over time.  In addition, I would suggest you set up a meeting with a TIAA representative to have her explain the particulars in your situation. This is an important decision which you want to fully understand before you commit to a strategy. Add TIAA’s rules and complexity with IRS complexity and you have many ways you can mess this up. 

                        • Re: How to add TIAA Traditional withdrawals into retirement and budget planning
                          Frugal12

                          I am so grateful for all the input from everyone  and I will absolutely make sure we speak to a TIAA-Cref representative in person because I clearly am not communicating well to TIAA-Cref reps  over the phone -nor am I understanding their responses - in spite of taking detailed notes.

                           

                          i have not yet been able to post on Morningstar although I have gotten as far as signing in. I suspect I need to use a computer with a newer operating system rather than the old - but usually reliable-  computer we generally use. So I'll use my husband's laptop as soon as possible. In the meantime I have been avidly reading the posts at TIAA-Cref  at Morningstar and they are very enlightening.

                           

                          I Did call TIAA- Cref on Friday and was told ( or thought I was told) that money in TIAA-Traditional must be completely taken out of Traditional within 10 years of starting RMDs. I no longer trust that to be true, however.

                           

                          i'll also need to discover how equity funds work compared to TIAA traditional when it comes to distributions because- in an effort to rebalance- we have allocated some future  contributions into equity funds instead of the 100% that was going into the very reliable Traditional.


                          It does make my stomach flutter a bit  as well as rattle my  nerves ( but lightly so far) when I compare the rough equity performances lately to the solid Traditional returns but we wanted to offset low returns with a chance for growth - and TIAA-Cref isn't our sole retirement vehicle (although it will certainly be a significant part of our financial life)

                           

                          My thinking about returns on money saved and/ or invested gets especially muddled when I try to factor in the employer contribution....which is of course a bonus. it is hard for me not to see the employer contribution as an added " return" which boosts the guaranteed rate . I am probably not explaining it clearly but if someone was guaranteed a 10% return on $100 and then the employer matched contributions up to a certain amount..wouldn't the employer contributions ( for an investment with a guaranteed return) be like an added return -at least above and beyond the total amount of the employee contributions?

                            • Re: How to add TIAA Traditional withdrawals into retirement and budget planning
                              JerryD

                              I am very pleased that you are planning on getting more face-to-face advice and are exploring the wonderful information source over at morningstar. Don't be timid about asking questions there. They will wade in on recommended investments besides Traditional. Just remember that you do not have to provide great detail on the amount of your portfolio, but they do need to understand your situation, risk, age, years to retirement, etc. so that they can render useful advice. Some of the long-term and real savoy participants there in my opinion are uphaus, juris2, skipper, yogi, raywax, wizard, crefwatch and a few more.

                               

                              Again, I repeat that I am neither an investment adviser nor associated with TIAA - just another participant. But if you like conservative investments like Traditional you may also love The Real Estate Account. It is quite predictable and does much better on returns. Just be aware that when the market gets very bad, it too can go down. I recommend that you study it over at morningstar. The participants there are very verbal on the usefulness and characteristics of Traditional, Real Estate, annuities and many other subjects.

                               

                              Frugal, you are making real progress on your retirement quest. Keep it up. Educate yourself on your plan(s) and discover your investment goals and tolerance before you pour the concrete on your retirement withdrawals and investments.    GOOD LUCK!!!!!   :-)))

                          • Re: How to add TIAA Traditional withdrawals into retirement and budget planning
                            Retired not Obsolete

                            The TIAA document referenced in the link below is very helpful for planning how to take income from your TIAA investments. Pages 5-13 discuss, in detail, 6 income options available, to which TIAA investment types each option applies, and advantages and disadvantages of each option. You will have to determine which of the 6 options are available under your employer's plan. When you meet with your TIAA financial representative take this document with you to ask which of the 6 options are available for the investment types you hold in your employer's plan. This will minimize any language differences as each option is defined in TIAA terms.

                             

                            If you have your original TIAA-CREF contract for your employer's plan you can start to get an idea of the income options available. Usually on the second page of the contract is an Index of Provisions. Look for terms such as Income Benefit or Lump-sum Benefit. Note however, that you may have received endorsements after the issue of the original contract that modify the income options available. Your TIAA financial representative will have the up-to-date options that apply to your plan.

                             

                            I used this document when meeting with my TIAA financial advisor. One thing he explained was that the Transfer Payout Annuity applies to only certain TIAA Traditional annuity types. That is discussed in the document also. Here is the link.

                            https://www.tiaa.org/public/pdf/making-the-most-of-retirement.pdf

                             

                            Hope this helps with planning your retirement. Good Luck!!