Annuities in TIAA-CREF 401(a) and rollover IRA

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Annuities in TIAA-CREF 401(a) and rollover IRA

Postby Ulan » Mon May 25, 2009 4:02 am

Hello everybody!

I'm finally revisiting my investments after some time of not wanting to look at them. I'm relatively new to the US, have contributed to a 401a for three years, and it's the second year I have a Roth IRA, which means that everything is pretty much a blank slate. I also have had a taxable brokerage account for about 8 months. But here the data:

Emergency funds = 24 months of expenses (in CU savings account)
Debt: none
Tax Filing Status: Single
Tax Rate: 19% Federal 2.5% State Arizona
Age: 47

Desired Asset allocation: (75/25)
Intl allocation: 30% of stocks

I would like to overweight value stocks in domestic equity, but I am not sure whether that's a good idea (I assume nobody knows).

Current portfolio: 35k (I guess I should not retire yet ;))

Taxable (Wells Fargo)

9.3% cash (available for investing in checking)
38.5% Vanguard Total Stock Market ETF (VTI/0.07)

Roth IRA (Wells Fargo)
14.8% cash
14.2% Vanguard Intermediate Term Bond ETF (BIV/0.10)

401a (TIAA-CREF)

7.8% TIAA Traditional (-/-)
1.8% TIAA Real Estate Account (-/0.84%)
6.0% CREF Stock Account (-/0.62%)
7.6% CREF Inflation-Linked Bond Account (-/0.56%)

New annual Contributions

$2.8k for 401a for whole year (employer doesn't match yet, but is supposed to do so retroactively for 5 years in 1.7 years)
$- taxable
Roth money for this year already included in list

Funds available in 401(a)
Guaranteed
TIAA Traditional -/-

Equities
CREF Stock -/0.62
CREF Growth -/0.63
CREF Equity Index -/0.56
CREF Global Equities -/0.66
TIAA-CREF Social Choice Equity Fund - Retirement Class TRSCX/0.46
TIAA-CREF International Equity Fund - Retirement Class TRERX/0.79
American Funds Capital World Growth & Income Fund RWIVX/0.50
American Funds EuroPacific Growth Fund RERFX/0.55
First American Mid-Cap Growth Opportunity Fund FISGX/0.97
Goldman Sachs Growth Opportunities Fund GGOIX/1.07
Goldman Sachs Large-Cap Value Fund GSLIX/0.77
Legg Mason Value Fund LMNVX/0.74
Legg Mason Opportunity Fund LMNOX/1.25
Legg Mason U. S. Small-Cap Value Fund LUSIX/1.26
Lord Abbett Small-Cap Blend Fund LSBYX/1.01
Neuberger Berman Socially Responsive Fund NBSRX/0.90
Royce Opportunity Fund ROFIX/1.02
Royce Premier fund RPFIX/1.00
SsgA S&P 500 Index Fund SVSPX/0.18
T. Rowe Price Growth Stock Fund PRGFX/0.67
Vanguard 500 Index Fund - Signal Shares VFIAX/0.07
Vanguard Explorer Fund - Admiral Shares VEXRX/0.32
Vanguard Small-Cap Growth Index Fund VISGX/0.22
Vanguard Selected Value Fund VASVX/0.45
Vanguard Strategic Equity Fund VSEQX/0.32
Vanguard Windsor II Fund VWNFX/0.39

Real Estate
TIAA Real Estate -/0.84

Fixed Income
CREF Bond Market -/0.58
CREF Inflation-Linked Bond -/0.56
Western Asset Core Plus Bond Portfolio WACPX/0.46
Goldman Sachs Government Income Fund GSOIX/0.66

Money Market
CREF Money Market -/0.54

Multi-Asset
CREF Social Choice -/0.59
TIAA-CREF Lifecycle 2010 Fund - Retirement Class TCLEX/0.87
TIAA-CREF Lifecycle 2015 Fund - Retirement Class TCLIX/0.89
TIAA-CREF Lifecycle 2020 Fund - Retirement Class TCLTX/0.92
TIAA-CREF Lifecycle 2025 Fund - Retirement Class TCLFX/0.94
TIAA-CREF Lifecycle 2030 Fund - Retirement Class TCLNX/0.96
TIAA-CREF Lifecycle 2035 Fund - Retirement Class TCLRX/0.98
TIAA-CREF Lifecycle 2040 Fund - Retirement Class TCLOX/0.95
T. Rowe Price Capital Appreciation Fund PRWCX/0.71


Questions:

1. In my 401a, I have only annuities. These are either outright annuities (TIAA-Traditional) or stock and bond funds packed into annuities, a TIAA-CREF oddity. As I understand, annuities are basically unmovable, or only over long time periods or with huge penalties. Do you think any of the "normal" fund offerings in my 401a plan might be better in case I ever want to rollover this 401a?

2. I would like to stick with ETF's in the Wells Fargo accounts, because I can easily cash those in case I leave the country again. I guess the Boglehead way would be just to buy VTI, some foreign stock ETF, maybe some value ETF?

3. I already put this year's $5000 cash into the Roth. I'm thinking of buying one of the MMF's available in the Wells Fargo account and stretch the buying of ETF's over some time. Does that sound reasonable?

I guess that's it for the moment. If anyone has an idea of what I can do with these accounts, I would be happy to here suggestions.
Last edited by Ulan on Tue May 26, 2009 9:40 pm, edited 2 times in total.
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Postby Ulan » Tue May 26, 2009 3:59 pm

Okay, I guess my post up there contained too much rambling :). I think I can figure out the allocation in my WF accounts myself, so my main question is regarding the TIAA-CREF account:
  • Did anybody here ever rollover a TIAA-CREF 401a into an IRA at a different company after changing jobs?
  • Were the annuities in the TIAA-CREF 401a a problem in this case?
  • Is it better to avoid annuities in the TIAA-CREF 401a altogether, and do you consider any of the other options I have in that plan viable?
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Postby retiredjg » Tue May 26, 2009 4:20 pm

Ulan, I think the problem is that many people don't know how TIAA-CREFF works. Just bump your post up a few times and hopefully somebody will see it. Or, you might change the title of your post to include TIAA or something like that. Good luck!
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Postby Ulan » Tue May 26, 2009 9:39 pm

Thanks for the suggestion. I just changed the title :).
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Postby peter71 » Tue May 26, 2009 9:54 pm

Ulan wrote:Thanks for the suggestion. I just changed the title :).


Hi Ilan,

I'm not an expert on withdrawals and rollovers and so forth, and TIAA-CREF plans can vary from employer to employer, but for all practical purposes I think you can think of the variable annuities other than TIAA-Traditional much as you'd think of mutual funds, with no restrictions on withdrawals (except for minor restrictions with the TIAA Real Estate Account). Indeed, while I'm a bit confused by your post it sounds like you may have both options in your 401a (as I do in my 403b) and should thus be able to move between the two.

Given you already have an account, you should be able to log into the "transfer funds" option within "manage my accounts" and see the various places you can move stuff. Beyond that, you might also call TIAA-CREF and ask as while the phone staff can get confused about the details of the Traditional Annuity they should be able to help you about the basics of what you can do with money in your particular plan when you change employers, etc. You could also ask over on Morningstar's TIAA board, but with all the different account types I'm guessing that's what people will tell you to do there too.

All best,
Pete
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Postby Ulan » Wed May 27, 2009 3:56 am

You are probably right. I've already read about some time limits and fees that are involved here. I just hoped someone could give me a ballpark figure from experience, but I can definitely try to calculate this myself. I will have a look at those Morningstar forums, too. Thanks for the answer!
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Postby brainstem » Wed May 27, 2009 8:38 am

RE: TIAA and IRAs

If you have a solid nest egg, even the TIAA reps have, in the past, advised to not take the annuity offer and, instead, roll things over. That is, you are better off as are your heirs to have the assets in hand rather than in an annuity that vanishes with death or after a time certain.

That said, my wife (age - mid 50's) had a TIAA account - which has proven to be a solid, safe performer in this unpleasant 15 years in equities -- and left the employer (university) that supplied the offerning -- We have arranged, by the rules of the program, to move 10% per year of the annuity account into her IRA -- it is treated as a rollover on annual taxes. She is not currently taking withdrawals from the IRA.
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Postby Tramper Al » Wed May 27, 2009 8:59 am

peter71 wrote:I'm not an expert on withdrawals and rollovers and so forth, and TIAA-CREF plans can vary from employer to employer, but for all practical purposes I think you can think of the variable annuities other than TIAA-Traditional much as you'd think of mutual funds, with no restrictions on withdrawals (except for minor restrictions with the TIAA Real Estate Account).

Check carefully with regard to your TIAA Traditional offering, as they vary by plan. One form requires about 10 years to withdrawal from, so some might consider that somewhat restrictive.

To date, I have pretty much only used my TIAA accounts to hold the Real Estate offering.
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Postby sscritic » Wed May 27, 2009 9:04 am

brainstem wrote:If you have a solid nest egg, even the TIAA reps have, in the past, advised to not take the annuity offer and, instead, roll things over. That is, you are better off as are your heirs to have the assets in hand rather than in an annuity that vanishes with death or after a time certain.

That said, my wife (age - mid 50's) had a TIAA account - which has proven to be a solid, safe performer in this unpleasant 15 years in equities -- and left the employer (university) that supplied the offerning -- We have arranged, by the rules of the program, to move 10% per year of the annuity account into her IRA -- it is treated as a rollover on annual taxes. She is not currently taking withdrawals from the IRA.

Don't confuse an annuity with an annuity. They are completely separate things. The first is a particular legal form of investment and savings account; the second is a payment schedule.

Sometime people with savings in an annuity use the money to purchase an annuity, converting part of an annuity into an annuity. Your TIAA-CREF account may be an annuity, but it is not an annuity. Only some TIAA Traditional Accounts require you to take the money out with an annuity. Note that 10 roughly equal payments over a nine year and one day period is an annuity.
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annuity and annuity at TIAA-CREF

Postby raywax » Wed May 27, 2009 10:39 am

sscritic wrote:
brainstem wrote:

Sometime people with savings in an annuity use the money to purchase an annuity, converting part of an annuity into an annuity. Your TIAA-CREF account may be an annuity, but it is not an annuity. Only some TIAA Traditional Accounts require you to take the money out with an annuity. Note that 10 roughly equal payments over a nine year and one day period is an annuity.



My comment is with this sentence fragment - "Only some TIAA Traditional Accounts require you to take the money out with an annuity,"

I assume the poster (sscritic?) uses the last word as a payout annuity meaning that in some Traditional Accounts one must annuitize the Traditional holding into a life or term annuity for one or two individuals (of course from TIAA). IF this is what it means I think the statement is incorrect in essence. Personally I know of no TIAA-CREF retirement account (RA, GRA, SRA, GSRA or IRA) where one's only option is to annuitize the principal invested in the Traditional Account. Now as has been said by others, TIAA-CREF accounts vary according to the rules established by the originating agency (usually a college or university) so I cannot say that the statement is totally inaccurate; thus my phraseology "in essence."

If someone knows a situation where the statement is correct as it applies to one of the five retirement accounts I listed, pleased post or PM me.

Ray
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Postby SamLJ » Wed May 27, 2009 10:58 am

Hi Ulan,

Other people have taken a stab at some of your questions so I will take a stab at a portfolio for you. I like that you have Vanguard funds available to you in the 401a. I'm going to treat TIAA Traditional like a bond fund and assume you'd like to carry on investing in it in approximately the same % as you have now. I think the expenses on the other bond options in your 401a are a bit high so I'm going to put them in your Roth for now.

Do you want to continue investing in the TIAA Real Estate account? Most here would say that it is no point having an asset class in your portfolio unless it takes up at least 5% of the portfolio, so I'll give two suggestions, one with 5% allocated and one with 0% allocated to it.

Option 1 - real estate option

Taxable
26.8% Vanguard Total Stock Market
21% FTSE All-World ex-US Index

Roth
8.6% Vanguard Total Bond Market Index
8.6% Vanguard Inflation Protected Securities
2.6% Vanguard Extended Market Index (to balance the 500 Index in 401a)
9.2% Vanguard Total Stock Market

401a
7.8% TIAA Traditional
5% TIAA Real Estate
10.4% Vanguard 500 Index Fund


Option 2 - no real estate

Taxable
25.3% Vanguard Total Stock Market
22.5% FTSE All-World ex-US Index

Roth
8.6% Vanguard Total Bond Market Index
8.6% Vanguard Inflation Protected Securities
3.85% Vanguard Extended Market Index (to balance the 500 Index in 401a)
7.95% Vanguard Total Stock Market

401a
7.8% TIAA Traditional
15.4% Vanguard 500 Index Fund


I expect that the TIAA Traditional account will be tricky to move money out of, but if you are able to and would like a suggestion where it is not included then please post a request.

Hope this helps,
Sam

edit - I just realized that you won't have enough money yet to buy the extended fund in the Roth without overweighting it (due to the total size of the portfolio and the need for $3k minimum). You could either overweight it initially, or underweight that sector of the market and just stick with the total stock market fund in there for now).
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Re: annuity and annuity at TIAA-CREF

Postby sscritic » Wed May 27, 2009 11:04 am

raywax wrote:My comment is with this sentence fragment - "Only some TIAA Traditional Accounts require you to take the money out with an annuity,"

I assume the poster (sscritic?) uses the last word as a payout annuity meaning that in some Traditional Accounts one must annuitize the Traditional holding into a life or term annuity for one or two individuals (of course from TIAA). IF this is what it means I think the statement is incorrect in essence. Personally I know of no TIAA-CREF retirement account (RA, GRA, SRA, GSRA or IRA) where one's only option is to annuitize the principal invested in the Traditional Account. Now as has been said by others, TIAA-CREF accounts vary according to the rules established by the originating agency (usually a college or university) so I cannot say that the statement is totally inaccurate; thus my phraseology "in essence."

If someone knows a situation where the statement is correct as it applies to one of the five retirement accounts I listed, pleased post or PM me.

Ray

Ray:
A transfer payout annuity (TPA) is an annuity. It even has the word annuity in its title. In an RA, you have a choice of a lifetime annuity or a 10 equal payments annuity (I believe you could also choose a 20 equal payments annuity or other term exceeding 10 payments annuity). You can also take interest only payments or MRD payments, but neither of these deplete the account to zero. Only an annuity with terms between 10 payments and lifetime payments can completely empty your account.

Can you empty your TIAA Traditional account in an RA another way?

P.S. It is not a sentence fragment. It has a subject and a verb - "accounts" and "require."
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Postby Ulan » Wed May 27, 2009 11:18 am

Thank you very much for the responses. I think my withdrawal period to avoid penalties is 7 years.

I have listed everything that is available in my TIAA-CREF 401(a) in my first post. You can see that it is a mix of normal annuities (TIAA Traditional), funds packed into annuities (all those TIAA and CREF products that lack ticker symbols) and normal funds. At the moment, I'm only invested in annuities and funds packed into annuities, because someone suggested this to me when I made the plan decisions (I didn't know any better). Okay, it was not a completely unreasonable decision, because these annuities are the equivalent of a broad stock fund, a TIPS bond fund, and the REIT is a bit different again.

Which means I could now switch my regular contributions to normal funds in that 401(a) account, if it sounds reasonable. The choice is quite broad, with most of the funds being active ones. Some expense ratios are not too bad.

I guess it all comes down to fees. Let's say I leave the university in 2 years, which would be a long way from retirement. At that point I would have to look at my options: Leave the account as is, roll over within the company, roll over to a different company. I would base this mostly on costs. I don't have any problems with TIAA-CREF per se.
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Postby brainstem » Wed May 27, 2009 11:28 am

Don't confuse an annuity with an annuity.



Irwin Corey lives!
And folks wonder why the average investor has no idea what they are doing.
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Postby Ulan » Wed May 27, 2009 11:33 am

SamLJ wrote:Hi Ulan,

Other people have taken a stab at some of your questions so I will take a stab at a portfolio for you. I like that you have Vanguard funds available to you in the 401a. I'm going to treat TIAA Traditional like a bond fund and assume you'd like to carry on investing in it in approximately the same % as you have now. I think the expenses on the other bond options in your 401a are a bit high so I'm going to put them in your Roth for now.

Do you want to continue investing in the TIAA Real Estate account? Most here would say that it is no point having an asset class in your portfolio unless it takes up at least 5% of the portfolio, so I'll give two suggestions, one with 5% allocated and one with 0% allocated to it.

Hi Sam,

Thanks for the suggestions. I have already stopped paying into the TIAA Real Estate account. I didn't bother with selling anything yet, because of the associated fees. I guess it will just dilute out with time. I have to calculate whether I save anything by changing what I have or just lose all gains to fees.
SamLJ wrote:I expect that the TIAA Traditional account will be tricky to move money out of, but if you are able to and would like a suggestion where it is not included then please post a request.

Hope this helps,
Sam

It definitely helps. The TIAA Traditional account is not bad. The company subsidizes it all the time with boni they draw from the rest of their business, so it looks quite good for a fixed income investment.
SamLJ wrote:edit - I just realized that you won't have enough money yet to buy the extended fund in the Roth without overweighting it (due to the total size of the portfolio and the need for $3k minimum). You could either overweight it initially, or underweight that sector of the market and just stick with the total stock market fund in there for now).

That should not be a problem. I use ETF's in my Roth.
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Postby peter71 » Wed May 27, 2009 11:46 am

Ulan wrote:
Which means I could now switch my regular contributions to normal funds in that 401(a) account, if it sounds reasonable. The choice is quite broad, with most of the funds being active ones. Some expense ratios are not too bad.



Hi Ulan,

If your 401a plan is like my restrictive "RA" plan, you can take all of your current "annuity" funds except those in the TIAA Traditional Annuity and move them to "normal funds" immediately at TIAA CREF (or elsewhere within the plan options) if you so choose (though for funds in the TIAA Real Estate account you'll have to do it by phone). If your plan is like my less restrictive GSRA plan (with the lower TIAA Traditional interest rates) you can also move the monies in TIAA Traditional immediately should you so choose.

Chances are extraordinarily high that your plan is like one of these two types of plans, but there's no way for us to really know for sure.

As for what you should do vs. what you can do . . . I agree that the biggest single factor you should consider is costs and TIAA-CREF's pricing can be quite idiosyncratic so it pays to look at the ER's on both the "normal" and the "abnormal" options alike.

All best,
Pete
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Postby Ulan » Wed May 27, 2009 12:05 pm

peter71 wrote:Hi Ulan,

If your 401a plan is like my restrictive "RA" plan, you can take all of your current "annuity" funds except those in the TIAA Traditional Annuity and move them to "normal funds" immediately at TIAA CREF (or elsewhere within the plan options) if you so choose (though for funds in the TIAA Real Estate account you'll have to do it by phone). If your plan is like my less restrictive GSRA plan (with the lower TIAA Traditional interest rates) you can also move the monies in TIAA Traditional immediately should you so choose.

Chances are extraordinarily high that your plan is like one of these two types of plans, but there's no way for us to really know for sure.

As for what you should do vs. what you can do . . . I agree that the biggest single factor you should consider is costs and TIAA-CREF's pricing can be quite idiosyncratic so it pays to look at the ER's on both the "normal" and the "abnormal" options alike.

All best,
Pete

Thanks Pete. This is my plan. And you are spot on when you mention their fee jungle. The fees linked on the plan's front page here look completely different from the one listed when I log in. For instance, I listed the Vanguard 500 fund with a gross expense ratio of 0.07% in my first post, but given this pdf, it's 0.19%, including fees. You also have to watch out for fee waiver expirations. Oh well.

Their account of my plan payments never matches my employer's account of my plan payments, either. It's a bit of a mess (might be my employer's fault, though).
Last edited by Ulan on Wed May 27, 2009 12:14 pm, edited 1 time in total.
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Postby sscritic » Wed May 27, 2009 12:09 pm

Ulan wrote:Thanks for the suggestions. I have already stopped paying into the TIAA Real Estate account. I didn't bother with selling anything yet, because of the associated fees.

What fees are you charged for selling TIAA Real Estate Account? The fact sheet states that you can only sell once a quarter, but doesn't mention any fees. I sold all of mine in December without fees (over the internet). These may by your 401(a) fees, but I don't know of any TIAA fees.
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Re: annuity and annuity at TIAA-CREF

Postby raywax » Wed May 27, 2009 1:26 pm

Ray[/quote]
Ray:
A transfer payout annuity (TPA) is an annuity. It even has the word annuity in its title. In an RA, you have a choice of a lifetime annuity or a 10 equal payments annuity (I believe you could also choose a 20 equal payments annuity or other term exceeding 10 payments annuity). You can also take interest only payments or MRD payments, but neither of these deplete the account to zero. Only an annuity with terms between 10 payments and lifetime payments can completely empty your account.

Can you empty your TIAA Traditional account in an RA another way?

P.S. It is not a sentence fragment. It has a subject and a verb - "accounts" and "require."[/quote]

It is the comma at the end of the quoted statement that made me correct my original effort that called it a sentence. Agree it had the components of a sentence but no period. I was just trying to be accurate.

No, there is no other way of emptying an RA but there is another way to empty a GRA. With a time restriction that must be met and a fee that has to be deduced the GRA can be withdrawn all at once without annuitization.

Ray
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