TIAA-Cref variable annuity options - rollover restrictions

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TIAA-Cref variable annuity options - rollover restrictions

Postby Justin618 » Thu Apr 15, 2010 11:08 am

My wife just accepted a position with a non-profit offering a 403b plan. She will be fully funding the 403b to the contribution limits - the matching vests immediately and is very generous. The acceptable plan options boil down to:

1) TIAA-Cref variable annuity accounts
2) T Rowe Price Retirement funds (2010, 2020, 2030, 2040, etc.)

I'm unfamiliar with TIAA-Cref, although I've heard generally positive things, and am a little hesitant about getting locked into variable annuity accounts. Specifically, my wife does not envision being at the position forever and we would want to rollover her 403b to VG when she separates - I am concerned about restrictions on rollover with respect to the variable annuity accounts.

I'm leaning her towards TRP retirement funds. I suppose I should really scour the TIAA-Cref documents, but any thoughts would be appreciated.

Thanks,
Justin
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Postby retiredjg » Thu Apr 15, 2010 11:27 am

Edited to remove incorrect information.

TC has some great funds at reasonable prices - a total stock, total bond, a global stock, inflation protected bonds, even a REIT among other things. This is one case where you do not need to fear the words "variable annuity".

If I were you, I would not avoid TIAA-CREF at all. Learn about it and use it.
Last edited by retiredjg on Fri Apr 16, 2010 10:37 am, edited 1 time in total.
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Postby Levett » Thu Apr 15, 2010 12:11 pm

Justin,

There's plenty of info at the TIAA website + you (or perhaps your wife) can call TIAA or schedule a counseling session (no one will try to sell you anything) and ask all your questions.

However, before you pose any questions to TIAA you had better look at your wife's Plan Document because it's your wife's employer (not TIAA) who sets the rules about vesting, rollovers and the like.

Like many academics, I've been with TIAA many many years and believe it's one of the very best retirement programs in the country.

On the other hand, T Rowe Price is also an excellent company. Bob U.
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Postby raywax » Thu Apr 15, 2010 3:56 pm

Justin,

The variable annuities that are listed at the top of the Performance page at the TIAA-CREF web site, which to the best of my knowledge are available in every one of their retirement accounts (most also have one or more classes of mutual funds) are for all practical purposes mutual funds and can be thought of as mutual funds. The basic difference between them is that one can annuitize directly from one of their VAs into a one-life or two-life annuity upon retirement.

I second Bob's advice; check the Plan Document for her institution and also call or visit a local TIAA-CREF office. You can phone them at 1-800-842-2776.

Ray
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Postby sscritic » Thu Apr 15, 2010 4:49 pm

I know the word annuity scares people, but if you look at how the IRS describes a 403(b), they use the word Annuity:
IRC 403(b) Tax-Sheltered Annuity Plans

A 403(b) tax-sheltered annuity (TSA) plan is a retirement plan offered by public schools and certain tax-exempt organizations. An individual’s 403(b) annuity can be obtained only under an employer’s TSA plan. Generally, these annuities are funded by elective deferrals made under salary reduction agreements and nonelective employer contributions.
http://www.irs.gov/retirement/article/0 ... 30,00.html

The official publication for taxpayers is publication 571:
"Tax-Sheltered Annuity Plans (403(b) Plans)
For Employees of Public Schools and Certain Tax-Exempt Organizations"
http://www.irs.gov/pub/irs-pdf/p571.pdf

Note that the IRS uses the term "Tax-Sheltered Annuity Plans" with 403(b) thrown in as a parenthetical comment.
What is a 403(b) Plan?
A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.
Individual accounts in a 403(b) plan can be any of the following types.
• An annuity contract, which is a contract provided through an insurance company,
• A custodial account, which is an account invested in mutual funds, or
• A retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.

The IRS has several publications on 403(b) plans, or should I say Tax Sheltered Annuity Plans. :) Start with those linked from the first link, including a good general introduction: publication 4482 "403(b) Tax-Sheltered Annuity for Participants."
http://www.irs.gov/pub/irs-tege/pub4482.pdf

None of this has anything specific to do with TIAA-CREF, but you have to realize that TIAA-CREF basically invented the concept before there ever was a 403(b) section to the IRS code.

In 1942, Congress introduced a mechanism to assist tax-exempt organizations in competing with other employers for the services of employees. The mechanism permitted employees of tax-exempt organizations to save more easily for their retirement. The Revenue Act of 1942 (the “1942 Act”) added Section 22(b)(2)(B) to the Internal Revenue Code (the “Code”) which permitted tax sheltered annuities (“TSA”) for employees of certain tax-exempt organizations.

To address the issues that materialized under Section 22(b)(2)(B), Congress enacted the Technical Amendments Act of 1958 (the “1958 Act”). The 1958 Act further codified the tax deferred treatment and other benefits of annuities purchased by tax-exempt organizations by adding Section 403(b) to the Code.
http://www.irs.gov/pub/irs-tege/tege_act_rpt5.pdf

TIAA started offering portable retirement plans to teachers in 1918:
"In 1918 the Carnegie Foundation established Teachers Insurance and Annuity Association (TIAA), a fully-funded system of pensions for professors."
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Postby dbr » Thu Apr 15, 2010 4:59 pm

sscritic wrote:
What is a 403(b) Plan?
A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.
Individual accounts in a 403(b) plan can be any of the following types.
• An annuity contract, which is a contract provided through an insurance company,
• A custodial account, which is an account invested in mutual funds, or
• A retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.



The IRS has made it crystal clear that a "tax-sheltered annuity plan" can be an annuity and can also not be an annuity. I don't know why anyone would think that an annuity plan would have to be an annuity. :?

It is certainly true that many employer documents use the words annuity and plan in the context of the 403b when no annuity whatsoever is involved and also when the plan is an insurance contract that is an annuity.

It is also true that outside the context of retirement plans, the industry used the word annuity to cover a huge range of different types of arrangements all of which are annuities but so different in terms that the word becomes nearly meaningless.
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Re: TIAA-Cref variable annuity options - rollover restrictio

Postby grabiner » Thu Apr 15, 2010 8:37 pm

Justin618 wrote:My wife just accepted a position with a non-profit offering a 403b plan. She will be fully funding the 403b to the contribution limits - the matching vests immediately and is very generous. The acceptable plan options boil down to:

1) TIAA-Cref variable annuity accounts
2) T Rowe Price Retirement funds (2010, 2020, 2030, 2040, etc.)

I'm unfamiliar with TIAA-Cref, although I've heard generally positive things, and am a little hesitant about getting locked into variable annuity accounts. Specifically, my wife does not envision being at the position forever and we would want to rollover her 403b to VG when she separates - I am concerned about restrictions on rollover with respect to the variable annuity accounts.


TIAA Traditional Annuity may have limitations on rollovers. Any other restrictions would be specific to her plans; I have one TIAA-CREF retirement plan at a former employer which won't allow me to withdraw or roll over the employer contributions until age 55, even though I left the employer years ago.
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Re: TIAA-Cref variable annuity options - rollover restrictio

Postby sscritic » Thu Apr 15, 2010 10:05 pm

grabiner wrote:TIAA Traditional Annuity may have limitations on rollovers. Any other restrictions would be specific to her plans; I have one TIAA-CREF retirement plan at a former employer which won't allow me to withdraw or roll over the employer contributions until age 55, even though I left the employer years ago.

David is right. The restriction are not necessarily TIAA's. Your 403(b) is a PLAN that only your employer can create. Your employer might create a plan with restrictions that apply to TIAA, to another insurance company, or to a custodian who purchases mutual fund shares for you as part of the plan.

Your wife has to check with HR at the non-profit to find out the rules for her/their plan. She might have to dig deeply, because HR might not know. I would guess that you could contact TIAA and ask about their contract with her employer. I would attempt to do the same with T. Rowe Price.
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Re: TIAA-Cref variable annuity options - rollover restrictio

Postby raywax » Thu Apr 15, 2010 10:12 pm

sscritic wrote:
grabiner wrote:

Your wife has to check with HR at the non-profit to find out the rules for her/their plan. She might have to dig deeply, because HR might not know. I would guess that you could contact TIAA and ask about their contract with her employer. I would attempt to do the same with T. Rowe Price.


I certainly am not familiar with any institution's TIAA-Plan other than the one I was employed for 32 years but I know from exchanging messages and numerous posts in the M* TIAA-CREF forum that the usual situation is for the TIAA-CREF participant to be issued a contract from TIAA-CREF. So I would be surprised if she did not have one, but she might not.

More likely is she may not have ever read it and may not remember it. Still I think most participants file theirs somewhere and I think it is likely she did so.

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Re: TIAA-Cref variable annuity options - rollover restrictio

Postby sscritic » Thu Apr 15, 2010 10:43 pm

raywax wrote:I certainly am not familiar with any institution's TIAA-Plan other than the one I was employed for 32 years but I know from exchanging messages and numerous posts in the M* TIAA-CREF forum that the usual situation is for the TIAA-CREF participant to be issued a contract from TIAA-CREF. So I would be surprised if she did not have one, but she might not.

The OP's wife just started work and hasn't chosen TIAA, so she doesn't have a contract. I know that not all the details will be in the contract, and it can be changed.

I started a U 1 in state 1 and moved to U 2 in state 2. At some point, I got a notice that I could now invest in the TIAA Real Estate Annuity. I believe the notice applied to U 2. I might have already been eligible to invest in TREA within my contract from U 1, but I don't remember. Different institutions have different master contracts; that was my only point.
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Postby Justin618 » Fri Apr 16, 2010 9:36 am

Thanks for everyone's replies. I am less concerned regarding TIAA now - as a trained boglehead, the word "annuity" is always a red flag.

I have a little information to report. My wife's future employer's 403b TIAA options are the "CREF Variable Annuity" account options, which includes equities, fixed income, money market, real estate, and the Traditional (guaranteed) annuity account option. From reading TIAA's materials, the only VA account with any restrictions is the Traditional account, otherwise transfers & rollovers are freely allowed without penalty. So the TIAA contract will not be a concern, and so long as we stay clear of the Traditional VA we should be clear on that end.

The real document I need to review is her employer's 403b plan, which I haven't seen yet (just FAQs that cover matching, vesting, contribution logistics). Nevertheless, I would be greatly surprised if there were any restrictions on withdrawals/rollovers on separation of employment (isn't that universal? if not a legal right).

Justin
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Postby Levett » Fri Apr 16, 2010 10:35 am

Justin,

TIAA Traditional is not a VA. It is a guaranteed fixed annuity.

Here's an informative pdf. http://www.tiaa-cref.org/ucm/groups/content/@ap_ucm_p_tcp/documents/document/tiaa01011136.pdf

I'm not sure it is wise to avoid what may well be TIAAs best product, Bob U.
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Postby retiredjg » Fri Apr 16, 2010 10:35 am

Justin618 wrote:Nevertheless, I would be greatly surprised if there were any restrictions on withdrawals/rollovers on separation of employment (isn't that universal? if not a legal right).

Justin, if I understood correctly, a couple of people above have stated that yes, there can be restrictions - it depends on the employer plan, not TIAA CREF. (You would think, however, that would have been addressed in the FAQs they already gave you.)
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Postby House Blend » Fri Apr 16, 2010 11:04 am

Justin,

A key thing to ascertain at this point (if you have not already done so) is what type of contract she will have: most likely one of RA, GRA, SRA, or GSRA. If employer matches are involved, I would say it is most likely RA/GRA, or maybe a mix. This affects whether Traditional is in the less liquid/higher interest form, or liquid/lower interest form.

For Traditional in an RA, you don't have many choices for using the money: either buy annuity income at or after retirement, or do a 10 payment/9 year Transfer Payout Annuity. (There's also an "interest only" option.) In particular, you can't transfer this to a rollover IRA in one shot, even after retirement. The only way is piecemeal, via the TPA option.

Everything else is fairly liquid, but note that for the Real Estate Account, transfers out are allowed only once per quarter.

In general, employer restrictions on portability are possible. I think the laws simply say that employers may allow transfers under certain conditions. Doesn't mean that they must.

My employer has restrictions similar to Grabiner's: after separation from employment, I can rollover my contributions at any time, but I cannot rollover the employer match until age 55.
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Postby Justin618 » Fri Apr 16, 2010 11:12 am

Bob,

Thanks for catching my misnomer - yes, TIAA Traditional is a fixed annuity and is subject to TIAA's withdrawal restrictions (takes 10 years to get out of it).

My initial question was whether to go with TIAA or the TRP Retirement Funds. I now feel comfortable with TIAA over TRP for a few reasons: 1) TIAA is lower cost and seemingly more investor-friendly, 2) the TIAA options will be easier to assimilate into our existing VG asset allocation, and 3) any employer plan rollover restrictions (I doubt there are any) would likely be applicable to both TIAA and TRP.

So, I guess the first order decision was to go with TIAA - using one of the fixed income VA accounts to get started, the second order decision (3-6 months into her employment) will be to consider her 403b TIAA asset allocation, including TIAA Traditional if merited.

Retiredjg,

I'll find that employer plan or have my wife request it (her employment packet came in two volumes).

Justin

PS - my wife has no interest in this stuff and leaves everything to me. She asked me the other day for the PIN to her ATM card - we've had the bank account for 5 years!
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Postby House Blend » Fri Apr 16, 2010 11:24 am

bob u. wrote:TIAA Traditional is not a VA. It is a guaranteed fixed annuity.

Here's an informative pdf. http://www.tiaa-cref.org/ucm/groups/content/@ap_ucm_p_tcp/documents/document/tiaa01011136.pdf

I'm not sure it is wise to avoid what may well be TIAAs best product.


Bob,

I'm sure you don't need to be told anything by me about Traditional, but let me just add a couple of sentences for the benefit of the OP.

Although T-C does describe Traditional as "guaranteed fixed", this may create a mistaken impression that when you annuitize, you've bought a fixed amount of monthly income for life. But in fact you've bought two things: a fixed annuity based on a minimum interest rate of 2.5%, plus a variable amount that is adjusted every year. [Never mind the graded option.]

I can think of a few reasons to avoid TIAA Traditional. The first one that comes to mind is, hypothetically, (a) it would be going into a non-liquid RA, and (b) Justin's wife expects to work at this non-profit for only a few years, and may move on to (say) the private sector. They could wind up "stuck" with a few $1K in Traditional for the next few decades. The monthly income that a few $1K can purchase isn't going to help much, and just adds complication.
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Postby Levett » Fri Apr 16, 2010 12:06 pm

All points well taken, House Blend. Bob U.
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Postby atomicrc11 » Fri Apr 16, 2010 12:11 pm

Justin618, keep in mind that in most GSRA/SRA contracts that the TIAA Traditional annuity has not restrictions on transferring out. It is usually only money contributed by the employer that has restrictions. Also, many people like the TIAA Traditional product even with restrictions as it comes with a higher rate. Some use it as part of their bond allocation.
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Postby raywax » Fri Apr 16, 2010 12:53 pm

atomicrc11 wrote:Justin618, keep in mind that in most GSRA/SRA contracts that the TIAA Traditional annuity has not restrictions on transferring out. It is usually only money contributed by the employer that has restrictions. Also, many people like the TIAA Traditional product even with restrictions as it comes with a higher rate. Some use it as part of their bond allocation.


If the active posters in the M* forum are a true indicator, I would say many T-C participants use the Traditional Account in part of entirely (I did the latter) for their fixed income allocation. And I have no regrets in doing so. I held it in my RA accounts and in my SRA and GSRA accounts. Now it is entirely held in TPA accounts.

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