Inheriting TIAA-CREF IRA and need to take RMDs...questions.

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
blackwater
Posts: 43
Joined: Sun Nov 24, 2013 3:17 pm

Inheriting TIAA-CREF IRA and need to take RMDs...questions.

Post by blackwater » Fri Nov 29, 2013 9:18 pm

Hi guys, I inherited a TIAA-CREF IRA worth about $998,000 from a deceased parent and need to take out RMDs. Sorry, I'm not so familiar with the investing language but I will try to explain my situation as best as possible. I met with the TIAACREF broker who advised me that since I'm 25 and not very in need of income right now, that I should take the very minimum which is about $1700 (per 100,000?) annually, over a lifetime. Is that the best option right now or can someone advise me with another option?

Also, the broker I was working with wasn't very clear on how much exactly annually I would be receiving. Would it be just $1700 or $1700 x 9? (9, because it's for every hundred thousand)?


Thanks a lot.

livesoft
Posts: 60426
Joined: Thu Mar 01, 2007 8:00 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by livesoft » Fri Nov 29, 2013 10:45 pm

I would recommend that you read about this yourself. Here is the relevant IRS publication: http://www.irs.gov/pub/irs-pdf/p590.pdf

Yes, you can get advice from the internet and from TIAA-CREF, but you already have seen that you should double-check and perhaps triple-check the advice and try to understand all the nuances yourself. After you have read the Publication 590 carefully, please come back and ask questions. Pub 590 can show you how to do the calcuations.

You can also move the inherited IRA to another vendor, so you do not need to keep it at TIAA-CREF. You should do a custodian-to-custodian transfer if you want to do that.

As for whether to take the minimum required distribution each year, that is your choice, but you MUST take the MRD (aka RMD) even though you can take much more if you want to. Maybe you want to buy a car or make a down payment on a home or some other big expenditure.

Also note that your asset allocation is unlikely to be the same as your parent's asset allocation needs were, so you should formulate an asset allocation plan of your own along with an investing policy statement and exchanging the funds and investments that your parent had into the funds and investments that fit your goals and plans.

Once again, this forum is a great resource, but it does not replace reading books and IRS publications to learn things.
Wiki This signature message sponsored by sscritic: Learn to fish.

blackwater
Posts: 43
Joined: Sun Nov 24, 2013 3:17 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by blackwater » Fri Nov 29, 2013 11:24 pm

Thanks so much for the link, livesoft.

livesoft
Posts: 60426
Joined: Thu Mar 01, 2007 8:00 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by livesoft » Fri Nov 29, 2013 11:26 pm

And thank you for your question. It serves as a reminder that I need to talk to my kids over the holidays about what to do if they inherit something from me.
Wiki This signature message sponsored by sscritic: Learn to fish.

Alan S.
Posts: 7504
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by Alan S. » Fri Nov 29, 2013 11:37 pm

Good advice from livesoft.

I would add emphasis to the statement regarding moving the funds to another custodian if you wish. If you do this you not only should, but you MUST do it by direct trustee transfer. Any distribution you take CANNOT in any circumstances be rolled over and therefore it is irrevocably taxable income to you. This happens to be the most costly error that non spouse beneficiaries make, and there is no fix for it.

blackwater
Posts: 43
Joined: Sun Nov 24, 2013 3:17 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by blackwater » Sat Nov 30, 2013 12:26 am

Alan S. wrote:Good advice from livesoft.

I would add emphasis to the statement regarding moving the funds to another custodian if you wish. If you do this you not only should, but you MUST do it by direct trustee transfer. Any distribution you take CANNOT in any circumstances be rolled over and therefore it is irrevocably taxable income to you. This happens to be the most costly error that non spouse beneficiaries make, and there is no fix for it.
Ah, okay, so to clarify, you are saying that any distribution that is taken out while the IRA is held at TIAA-CREF cannot be put back into the IRA whether it is held at TIAA-CREF or at any other institution?

jasg
Posts: 82
Joined: Wed May 08, 2013 7:10 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by jasg » Sat Nov 30, 2013 12:56 am

I use TIAA-CREF for my retirement and urge you to research them before you move the funds elsewhere. They offer services that others charge for or offer only via phone. They also have some unique investment options (TRAD and TREA) that might be available to you if the account is really a 403b instead of an IRA.

Just like Vanguard, they have low cost index funds, very low in some cases if index fund investing is a direction for you.

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by sscritic » Sat Nov 30, 2013 12:58 am

The statement would still be true if you did a direct trustee-to-trustee transfer (say to Fidelity) and then wanted to move your account to another custodian (say Vanguard). Inherited IRAs have special rules that don't apply to your own IRA. This is one of them. With your own IRA, you can withdraw money (have a check sent to you) and then roll it over by depositing it in the same or another IRA within 60 days. That's what you cannot do with an inherited IRA. You should read the recommended publication, publication 590.

There is another issue which has not been addressed yet. Was your parent already taking RMDs from IRAs? If so, did the parent own other IRAs that were left to other people? Another minor point: was the account at TIAA-CREF an IRA or a 403(b)? If you inherit a 403(b), in most cases you will want it to be transferred to an inherited IRA. The link following this quote might also help; it assumes the money is in a 403(b) before death, but the rules are pretty much the same if it starts in an IRA.
For instance, it must be determined (1) that the amount being transferred does not include any RMD for the year of the rollover or for any prior year, (2) whether the employee died before, or on or after, his or her “required beginning date,” and (3) whether the beneficiary is one of multiple beneficiaries of the deceased employee.
http://www.davis-harman.com/pub.aspx?ID=VFdwWmVnPT0=

P.S. to jasg. An IRA at TIAA-CREF can use Traditional and the Real Estate Account. (I am going to double check right now; if you don't hear back, I am correct)

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by sscritic » Sat Nov 30, 2013 1:04 am

New IRAs at TIAA-CREF have lower guarantees in Traditional than ones issued in earlier years. An inherited IRA may be able to keep the same minimum guarantee of the original contract and not be considered a new contract. Double check with TIAA. You may want to ask some question of the TIAA-CREF group at morningstar.

MooreBonds
Posts: 153
Joined: Sat Apr 27, 2013 8:54 pm
Location: Missouri

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by MooreBonds » Sat Nov 30, 2013 3:42 am

blackwater wrote:Hi guys, I inherited a TIAA-CREF IRA worth about $998,000 from a deceased parent and need to take out RMDs...I met with the TIAACREF broker who advised me that since I'm 25 and not very in need of income right now, that I should take the very minimum which is about $1700 (per 100,000?) annually, over a lifetime...Also, the broker I was working with wasn't very clear on how much exactly annually I would be receiving. Would it be just $1700 or $1700 x 9? (9, because it's for every hundred thousand)?
One important lesson I learned about an inherited IRA I have is that your annual withdrawal is ***NOT*** based on your life expectancy for your entire life.

You look at your age on December 31 in the year you inherit the IRA, and look at the divisor for that age. Divide the prior year's balance by that divisor for the RMD for that year. If you were 25 on December 31 of that year, then your divisor is 58.2 (or, 1.718% of the value on 12/31 of the prior year).

However, for future years, you subtract 1 from the first year's divisor to determine your RMD.

So, in the first year, if you were 25 on December 31, and your divisor is 58.2, your divisor to calculate your RMD for subsequent years is
57.2 second year
56.2 third year
55.2 fourth year
54.2 fifth year
53.2 sixth year

When I had read the IRS publications before, I merely assumed that it was obvious that you simply look up the divisor each year based on your age that year....but that's only if you are withdrawing from your own IRA, not if you have a beneficiary IRA.

Charles Mahaffey
Posts: 103
Joined: Mon Jun 16, 2008 5:56 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by Charles Mahaffey » Sat Nov 30, 2013 8:17 am

The inherited IRA must be renamed and the IRS guidelines are pretty specific on this. Also, this was a large inheritance, were their other beneficiaries? The reason I ask if estate taxes were paid by the estate then you may be able to take a Deduction for Income in Respect of a Decedent. This only applies if estate taxes were paid.

manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by manwithnoname » Sat Nov 30, 2013 9:22 am

blackwater wrote:Hi guys, I inherited a TIAA-CREF IRA worth about $998,000 from a deceased parent and need to take out RMDs. Sorry, I'm not so familiar with the investing language but I will try to explain my situation as best as possible. I met with the TIAACREF broker who advised me that since I'm 25 and not very in need of income right now, that I should take the very minimum which is about $1700 (per 100,000?) annually, over a lifetime. Is that the best option right now or can someone advise me with another option?

Also, the broker I was working with wasn't very clear on how much exactly annually I would be receiving. Would it be just $1700 or $1700 x 9? (9, because it's for every hundred thousand)?


Thanks a lot.
I am assuming that the IRA was invested in a mutual fund and not an annuity contract.

If this is true then your minimum distribution will be about $17,147 based on a value of 998k.

Question is when are you supposed to take the distribution. If your father was not taking mandatory distributions when he died then your first distribution must be taken in year after death. E.g., death occurs in 2013 first distribution must be taken in 2014 based on your age in 2014. See IRS Pub 590 P 37 to determine how to calculate the minimum distribution. Or you can contact TIAA-CREF directly to have them do the calculation for you since you will need to contact them anyway to retitle the account.

You can always take more than the minimum distribution in any year but the distribution is taxed as ordinary income at your marginal tax rate.

You will need to fill out an application to retitle the IRA with your SS# to denote that it is an inherited IRA so that taxable distributions will be reported to the IRS. T/C will provide the forms and guidance. You can designate your own beneficiary for the inherited IRA.

If the IRA is a mutual fund you can continue the same investments that your father had or you can change the investment selection. You can also transfer the IRA to another IRA provider, such as Schwab, Vanguard, etc.

One thing you cannot do is combine the inherited IRA with your own IRAs.

Reading Pub 590 is TMI. If you have questions post them here.

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by sscritic » Sat Nov 30, 2013 10:00 am

manwithnoname wrote: I am assuming that the IRA was invested in a mutual fund and not an annuity contract.
Why?

I have both IRAs and 403(b)s at TIAA-CREF. The IRA can invest in the CREF Variable Annuity Accounts, the TIAA Variable Annuity Account (the Real Estate Account), and the TIAA Fixed Annuity, the TIAA Traditional Annuity. Go to this page, uncheck the mutual fund check box, then click on apply filters.
https://www.tiaa-cref.org/public/tcfpi/InvestResearch

The RMD rules apply to all these whether in my 403(b) (Tax Sheltered Annuity) or my IRA. Why do you think that the RMD rules do not apply to Individual Retirement Annuities? I thought you were familiar with 26 USC 408
Under regulations prescribed by the Secretary, rules similar to the rules of section 401 (a)(9) and the incidental death benefit requirements of section 401 (a) shall apply to the distribution of the entire interest of the owner.
Is this under 408 (a) [account] or (b) [annuity]? Hint: both

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by sscritic » Sat Nov 30, 2013 10:18 am

Here is a crazy idea. You are 25 now and not in need of income. Is that because your expenses are low or because you are already in a very high tax bracket? The reason I ask is that if you take your IRA and transfer the money to a single premium payout IRAnnuity, you will get equal amounts over the rest of your life. Assuming your income today is lower than it will be in the future (and inflation doesn't disappear), then these annuity payments will give you more now, but represent a smaller and smaller portion of your income in the future. This smoothes out your income, and it also means that you won't have to worry about the RMD from this account for the rest of your life (once you navigate the intricacies of the RMD the year you transfer to a lifetime annuity). This may be a really bad idea, but one I think is worth considering.

manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by manwithnoname » Sat Nov 30, 2013 10:18 am

sscritic wrote:
manwithnoname wrote: I am assuming that the IRA was invested in a mutual fund and not an annuity contract.
Why?

I have both IRAs and 403(b)s at TIAA-CREF. The IRA can invest in the CREF Variable Annuity Accounts, the TIAA Variable Annuity Account (the Real Estate Account), and the TIAA Fixed Annuity, the TIAA Traditional Annuity. Go to this page, uncheck the mutual fund check box, then click on apply filters.
https://www.tiaa-cref.org/public/tcfpi/InvestResearch

The RMD rules apply to all these whether in my 403(b) (Tax Sheltered Annuity) or my IRA. Why do you think that the RMD rules do not apply to Individual Retirement Annuities? I thought you were familiar with 26 USC 408
Under regulations prescribed by the Secretary, rules similar to the rules of section 401 (a)(9) and the incidental death benefit requirements of section 401 (a) shall apply to the distribution of the entire interest of the owner.
Is this under 408 (a) [account] or (b) [annuity]? Hint: both
I limited my response to Mutual funds because they are subject to MRD rules of reg. 1.401(a)(9)-5. Distributions under Variable and fixed annuities can be subject to different rules under Reg 1.401(a)(9)-6.

livesoft
Posts: 60426
Joined: Thu Mar 01, 2007 8:00 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by livesoft » Sat Nov 30, 2013 10:31 am

I love investing other people's money and spending it, too.

Based on the size of this TIAA-CREF inheritance it is likely that the deceased contributed to it for quite some time including before TIAA mutual funds came on the scene. Yes, the deceased could have transferred out of the TIAA traditional annuity and the CREF stock fund into mutual funds at some point when the law (ERISA?) allowed that, but we know how inertia works especially with TIAA-CREF participants.

But I am just speculating.

I have had a TIAA-CREF 403(b) for almost 30 years now and use the funds mentioned by jasg in this thread. I am going to tell my beneficiaries not to be emotionally attached to this financial institution and to feel free to move the money elsewhere if they wish to.
Wiki This signature message sponsored by sscritic: Learn to fish.

JohnDoh
Posts: 72
Joined: Sat Nov 30, 2013 10:28 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by JohnDoh » Sat Nov 30, 2013 10:42 am

There's another point the OP might want to take into consideration: bankruptcy protection.

The Supreme Court is set to hear a case to decide whether or not inherited IRAs qualify for the bankruptcy protection afforded ordinary IRAs.

http://www.reuters.com/article/2013/11/ ... 8Q20131126
The hearing should clear up a split among lower courts that have issued divergent rulings on the issue, and could impact retirement and end-of-life planning.
If bankruptcy protection is important and one lives in the right state, it might be better to take a lump-sum distribution, pay the tax, and invest the proceeds in a variable annuity (which may be protected from bankruptcy depending on state law). "Better 2/3 of a bird in the hand, than none in the bush" -- so to speak.

The Wizard
Posts: 11639
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by The Wizard » Sat Nov 30, 2013 10:53 am

manwithnoname wrote:
Reading Pub 590 is TMI. If you have questions post them here.
I disagree.
Pub 590 is a reasonably big doc, but the OP should at least read and understand the sections pertaining to his situation.
That pub comes with a table of contents...
Attempted new signature...

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by sscritic » Sat Nov 30, 2013 11:22 am

I think people looking from the outside don't understand T/C. I don't know how they do it, but I have a 403(b). I have an annuity contract. However, it functions both as a 403(b) and a 403(b)(7) in that my money can be in annuity (sub)accounts, where dividends are not paid but absorbed, and in mutual funds, where dividends are paid. I also have a Rollover IRA, which functions the same way, allowing me to invest in annuity accounts and mutual funds.

I don't believe I have separate RMDs governed by separate rules for the two aspects of my one account, based on where my money is invested on any particular 12/31.

P.S. I can invest in the Real Estate Account and the Traditional Account in my IRA.

manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by manwithnoname » Sat Nov 30, 2013 11:27 am

The Wizard wrote:
manwithnoname wrote:
Reading Pub 590 is TMI. If you have questions post them here.
I disagree.
Pub 590 is a reasonably big doc, but the OP should at least read and understand the sections pertaining to his situation.
That pub comes with a table of contents...
Few people can comprehend what is being discussed because of the style and way the 113 page book is organized which is why I recommend that taxpayers do not
try to find answers to their tax problems. Investors eyes glaze over and their brains freeze if they have to listen to more than a 30 second sound bite on MRDs.

MN Finance
Posts: 1826
Joined: Sat Dec 22, 2012 10:46 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by MN Finance » Sat Nov 30, 2013 12:24 pm

If it's a 403b then TIAA will turn it into a SIP 403b and pay out the RMDs automatically. If it's an IRA then they'll turn it into a SIP IRA and do the same. (SIP stands for savings and investment contract, their version of an inherited account.) TIAA doesn't however have inherited IRAs (except via a brokerage wrap program), so you can't roll it from a 403 to an inherited IRA. The only thing you can do is continue the decedent's line of business, so to speak. TIAA requires the money to be in a SIP which pays out the RMD by contract, so you don't need to instruct them how much to take out and when. The SIP contracts continue the old TIAA vintage rates.

The fact that this is most assuredly a conventional TIAA retirement annuity account (probably multiple) vs a mutual fund account is irrelevant to RMDs. Many TIAA annuity contracts offer mutual funds, which is fine, but doesn't change the discussion.

manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by manwithnoname » Sat Nov 30, 2013 1:07 pm

MN Finance wrote:If it's a 403b then TIAA will turn it into a SIP 403b and pay out the RMDs automatically. If it's an IRA then they'll turn it into a SIP IRA and do the same. (SIP stands for savings and investment contract, their version of an inherited account.) TIAA doesn't however have inherited IRAs (except via a brokerage wrap program), so you can't roll it from a 403 to an inherited IRA. The only thing you can do is continue the decedent's line of business, so to speak. TIAA requires the money to be in a SIP which pays out the RMD by contract, so you don't need to instruct them how much to take out and when. The SIP contracts continue the old TIAA vintage rates.

The fact that this is most assuredly a conventional TIAA retirement annuity account (probably multiple) vs a mutual fund account is irrelevant to RMDs. Many TIAA annuity contracts offer mutual funds, which is fine, but doesn't change the discussion.
What TIAA 403b contracts can be turned into a SIP? I have A TIAA 403b annuity contract that contractually provides a monthly fixed annuity benefit to me or my beneficiaries. TIAA cannot transfer the funds to a SIP without the beneficiary's consent. Under reg. 1.401(a)(9)-6 the annuity payment automatically meets the MRD requirement regardless of the amount.

TIAA is a corporation organized as a legal reserve life insurance company to issue annuities that guarantee fixed payments. TIAA also operates the RE fund as a separate account. CREF is a separate legal corporation which is licensed to sell variable annuities and mutual funds.

TIAA does not sell mutual funds.

From the T/C website:

**TIAA is the insurance company affiliate that backs TIAA Traditional and our other guaranteed products. TIAA’s ratings and financial strength do not apply to variable annuities, mutual funds or any other product or service not fully backed by the claims-paying ability of TIAA.

https://www.tiaa-cref.org/public/produc ... retirement

The Wizard
Posts: 11639
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by The Wizard » Sat Nov 30, 2013 1:12 pm

manwithnoname wrote:
The Wizard wrote:
manwithnoname wrote:
Reading Pub 590 is TMI. If you have questions post them here.
I disagree.
Pub 590 is a reasonably big doc, but the OP should at least read and understand the sections pertaining to his situation.
That pub comes with a table of contents...
Few people can comprehend what is being discussed because of the style and way the 113 page book is organized which is why I recommend that taxpayers do not
try to find answers to their tax problems. Investors eyes glaze over and their brains freeze if they have to listen to more than a 30 second sound bite on MRDs.
You DO have a point there.
This is actually one of my little issues, actually; I think more people should invest a bit of time in doing their own federal income tax returns.
I've done mine for the past 45 years, but I do understand that some folks are not fluent in tax-ese...
Attempted new signature...

The Wizard
Posts: 11639
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by The Wizard » Sat Nov 30, 2013 1:28 pm

manwithnoname wrote:
What TIAA 403b contracts can be turned into a SIP? I have A TIAA 403b annuity contract that contractually provides a monthly fixed annuity benefit to me or my beneficiaries. TIAA cannot transfer the funds to a SIP without the beneficiary's consent. Under reg. 1.401(a)(9)-6 the annuity payment automatically meets the MRD requirement regardless of the amount.

TIAA is a corporation organized as a legal reserve life insurance company to issue annuities that guarantee fixed payments. TIAA also operates the RE fund as a separate account. CREF is a separate legal corporation which is licensed to sell variable annuities and mutual funds.

TIAA does not sell mutual funds.

From the T/C website:

**TIAA is the insurance company affiliate that backs TIAA Traditional and our other guaranteed products. TIAA’s ratings and financial strength do not apply to variable annuities, mutual funds or any other product or service not fully backed by the claims-paying ability of TIAA.

https://www.tiaa-cref.org/public/produc ... retirement
While you are technically correct, we generally refer to the combined entity TIAA-CREF, or T-C for short.
And the other problem is that the word "annuity" means at least 2 or 3 different things at T-C
As a retiree, I have both a life annuity with them that pays me monthly income plus additional money in both their variable annuities and mutual funds that I do not plan to annuitize. I'll probably end up taking RMDs from those funds when the time comes...
Attempted new signature...

MN Finance
Posts: 1826
Joined: Sat Dec 22, 2012 10:46 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by MN Finance » Sat Nov 30, 2013 1:47 pm

I'm not sure what you are arguing for or against. Clearly the OP has inherited contracts in the accumulation stage and have not been settled via annuitization. In such case, unless the OP wants to disclaim the asset, they need to be moved to a SIP or another company. Regardless this entire discussion is beyond the original question and is probably not helping the OP. As usual the board takes a good simple question and turns it into a forum for someone trying to prove how smart they are, which is too bad.

MN Finance
Posts: 1826
Joined: Sat Dec 22, 2012 10:46 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by MN Finance » Sat Nov 30, 2013 2:00 pm

sscritic wrote:Here is a crazy idea. You are 25 now and not in need of income. Is that because your expenses are low or because you are already in a very high tax bracket? The reason I ask is that if you take your IRA and transfer the money to a single premium payout IRAnnuity, you will get equal amounts over the rest of your life. Assuming your income today is lower than it will be in the future (and inflation doesn't disappear), then these annuity payments will give you more now, but represent a smaller and smaller portion of your income in the future. This smoothes out your income, and it also means that you won't have to worry about the RMD from this account for the rest of your life (once you navigate the intricacies of the RMD the year you transfer to a lifetime annuity). This may be a really bad idea, but one I think is worth considering.
This isn't a crazy idea and something for the OP to eventually consider. Though I could be mis remembering I recall some limitation to this for a young beneficiary if the annuity payments mean a lower distribution schedule than the RMDs. Though the RMDs are automatic with a TIAA inherited account, so that's not an issue. Annuitizing the variable accounts also allows market participation. Also, the money is not accessible in a lump sum in the future which could be a downside. Lastly, if it's a single life annuity, there's no way to protect the asset if the OP, say dies at age 50 or 60 compared to an inherited account which could be passed on.

MooreBonds
Posts: 153
Joined: Sat Apr 27, 2013 8:54 pm
Location: Missouri

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by MooreBonds » Sat Nov 30, 2013 2:44 pm

JohnDoh wrote:
If bankruptcy protection is important and one lives in the right state, it might be better to take a lump-sum distribution, pay the tax, and invest the proceeds in a variable annuity (which may be protected from bankruptcy depending on state law). "Better 2/3 of a bird in the hand, than none in the bush" -- so to speak.
I honestly would consider that a huge stretch. The income taxes owed by a distribution over one or even 2 years would place them in a much higher tax bracket.

For the difference in income taxes in taking everything out in one fell swoop over 1 or 2 years, the OP could take the RMDs and buy a $5M or $10M liability umbrella and likely still come out substantially ahead. Unless the OP already is in the top income tax bracket, you're talking about going from a tax bracket of 15% or 28% up to whatever the current top federal (and state/local?) tax brackets are - or many tens of thousands of additional income taxes owed.

Not to mention then having a variable annuity with a likely less-than-optimal investment offering compared to a self-directed IRA at Vanguard or another broker. Plus, wouldn't the annuity prevent you from accessing the funds until 59 1/2, unless you want to get hit with a penalty?

Alan S.
Posts: 7504
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by Alan S. » Sat Nov 30, 2013 2:59 pm

It would be nice if the OP would verify whether the inherited account is a 403b or an IRA, and if he was the sole designated beneficiary since multiple beneficiaries create separate account deadlines that impact RMD calculations.

One difference to note is that an inherited non spouse 403b can be converted to an inherited Roth IRA in whole or in part. An inherited Roth will still require RMDs in the same fashion as inherited pre tax plans. Doing large conversions in a single year is almost always unwise due to resulting marginal tax rates. An inherited IRA CANNOT be converted. at least under current law. There is also a slight chance that an inherited 403b could include a Roth 403b sub account, and/or after tax contributions in the pre tax 403b account.

Inheriting a large amount at age 25 can result in reduced ambition to work hard and develop a self sustaining career. Annuitizing the account would present a huge lost opportunity cost at this young an age and also play into diluting the drive to develop a career. Conversely, retaining control over the entire balance presents a trade off between having a balance available for good opportunities and having a balance available to blow on unnecessary wants instead of actual needs. There is no rush to make this decision, but once annuitization takes place it cannot be reversed except in rare and costly circumstances.

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by sscritic » Sat Nov 30, 2013 5:38 pm

Alan S. wrote:It would be nice if the OP would verify whether the inherited account is a 403b or an IRA, and if he was the sole designated beneficiary since multiple beneficiaries create separate account deadlines that impact RMD calculations.
I would think that even if he was the sole beneficiary of this IRA, if there were other IRAs with other beneficiaries and if the father was in an RMD year, there could be complications. Since the RMD is computed for all accounts and can be taken from one or more, the OP would have to verify with the other beneficiaries if they took all or part of the RMD for 2013. I could be wrong.

I want to thank livesoft and Alan S. for letting me know how complicated this can get (from livesoft's recent thread on multiple beneficiaries in an RMD year).

blackwater
Posts: 43
Joined: Sun Nov 24, 2013 3:17 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by blackwater » Sat Nov 30, 2013 8:23 pm

sscritic wrote:
Alan S. wrote:It would be nice if the OP would verify whether the inherited account is a 403b or an IRA, and if he was the sole designated beneficiary since multiple beneficiaries create separate account deadlines that impact RMD calculations.
I would think that even if he was the sole beneficiary of this IRA, if there were other IRAs with other beneficiaries and if the father was in an RMD year, there could be complications. Since the RMD is computed for all accounts and can be taken from one or more, the OP would have to verify with the other beneficiaries if they took all or part of the RMD for 2013. I could be wrong.

I want to thank livesoft and Alan S. for letting me know how complicated this can get (from livesoft's recent thread on multiple beneficiaries in an RMD year).
To confirm, I am the only beneficiary and I am pretty sure it's not a 403b and I'm inheriting it from my mother.
sscritic wrote:Here is a crazy idea. You are 25 now and not in need of income. Is that because your expenses are low or because you are already in a very high tax bracket? The reason I ask is that if you take your IRA and transfer the money to a single premium payout IRAnnuity, you will get equal amounts over the rest of your life. Assuming your income today is lower than it will be in the future (and inflation doesn't disappear), then these annuity payments will give you more now, but represent a smaller and smaller portion of your income in the future. This smoothes out your income, and it also means that you won't have to worry about the RMD from this account for the rest of your life (once you navigate the intricacies of the RMD the year you transfer to a lifetime annuity). This may be a really bad idea, but one I think is worth considering.
This sounds like a contending option, but wouldn't this option mean I would have to pay a huge amount of taxes? I would really appreciate it if you could go more into the details of this option.


Also, I still have no idea whether the RMD is literally $1700 a year or ($1700 x 9) a year. Anyone? $1700 sounds hilariously small and I would have to have a ridiculous life expectancy to be getting incrementally larger amounts until I die.

MN Finance
Posts: 1826
Joined: Sat Dec 22, 2012 10:46 am

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by MN Finance » Sat Nov 30, 2013 8:40 pm

Your RMD is 998000/58.2 which someone mentioned already is 17k. Each year the divisor drops by 1, so the percentage increases and obviously in 58 years it's empty.

manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by manwithnoname » Sat Nov 30, 2013 8:59 pm

"Also, I still have no idea whether the RMD is literally $1700 a year or ($1700 x 9) a year. Anyone? $1700 sounds hilariously small and I would have to have a ridiculous life expectancy to be getting incrementally larger amounts until I die."

BW:

If you had read my first post you would have noticed that I said that your minimum distribution would be $17,147 based on a value of 998k. Under IRS rules you are required to take out 1/58.2th of the account balance in the first year. The $ amount has nothing to do with an annuity table or other guaranteed amount.

In fact under the IRS table you will have to take a larger proportion of the account balance each year, e.g., 1/57.2th of the account balance in year 2, 1/56.2 in year 3, etc until the last of the account balance is distributed to you at 83 (25+58). The dollar amount of the minimum distribution will depend on the account balance at the end of the prior year.

If you had read my post further you would have seen that I said that you can always take more than the minimum distribution. You can receive the entire $998K as a single distribution from the IRA if you are willing to pay the taxes on it.

All of the above distribution rules are described in Pub 590 if you care to read it.

blackwater
Posts: 43
Joined: Sun Nov 24, 2013 3:17 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by blackwater » Sat Nov 30, 2013 10:08 pm

manwithnoname wrote:"Also, I still have no idea whether the RMD is literally $1700 a year or ($1700 x 9) a year. Anyone? $1700 sounds hilariously small and I would have to have a ridiculous life expectancy to be getting incrementally larger amounts until I die."

BW:

If you had read my first post you would have noticed that I said that your minimum distribution would be $17,147 based on a value of 998k. Under IRS rules you are required to take out 1/58.2th of the account balance in the first year. The $ amount has nothing to do with an annuity table or other guaranteed amount.

In fact under the IRS table you will have to take a larger proportion of the account balance each year, e.g., 1/57.2th of the account balance in year 2, 1/56.2 in year 3, etc until the last of the account balance is distributed to you at 83 (25+58). The dollar amount of the minimum distribution will depend on the account balance at the end of the prior year.

If you had read my post further you would have seen that I said that you can always take more than the minimum distribution. You can receive the entire $998K as a single distribution from the IRA if you are willing to pay the taxes on it.

All of the above distribution rules are described in Pub 590 if you care to read it.
Ah, okay, thanks a lot. I'm trying to read all the posts and understand what's being said, it's kind of difficult for me to take in everything.

Alan S.
Posts: 7504
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by Alan S. » Sat Nov 30, 2013 11:08 pm

I don't think we established what age your first RMD will be based on. It may not turn out to be 25. What was your mother's date of death? And what was your age as of 12/31 on the year FOLLOWING her death?

Minot
Posts: 411
Joined: Sat Jan 29, 2011 2:35 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by Minot » Sun Dec 01, 2013 6:42 pm

Blackwater, I'm sorry for your loss of your mother.

I'm surprised that none of the responses so far have mentioned the w word -- windfall. I highly recommend that for now you completely ignore all of the suggestions about what to do with this money, other than making sure that you do take the RMD, which TIAA-Cref will competently advise you about how much and by when. If you inherited anything else, then you should look into the tax implications and requirement regarding your total inheritance.

Before taking any other steps (including setting up a trust for your nephew), read the Wiki on managing a windfall. Then read it again. Then think about it and read it again. I would not automatically follow the advice to put it in low-risk FDIC accounts, which applies more to winning the lottery, or insurance settlement. For now, assuming that at least most of this IRA is money that you don't intend to use for at least 10 years, I'd leave it where it is while you read and think and start to figure out what your financial goals are. Take your time with this. Do some reading. Bogleheads can be a great resource.

I hope this is helpful.

blackwater
Posts: 43
Joined: Sun Nov 24, 2013 3:17 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by blackwater » Tue Dec 03, 2013 6:00 pm

Minot wrote:Blackwater, I'm sorry for your loss of your mother.

I'm surprised that none of the responses so far have mentioned the w word -- windfall. I highly recommend that for now you completely ignore all of the suggestions about what to do with this money, other than making sure that you do take the RMD, which TIAA-Cref will competently advise you about how much and by when. If you inherited anything else, then you should look into the tax implications and requirement regarding your total inheritance.

Before taking any other steps (including setting up a trust for your nephew), read the Wiki on managing a windfall. Then read it again. Then think about it and read it again. I would not automatically follow the advice to put it in low-risk FDIC accounts, which applies more to winning the lottery, or insurance settlement. For now, assuming that at least most of this IRA is money that you don't intend to use for at least 10 years, I'd leave it where it is while you read and think and start to figure out what your financial goals are. Take your time with this. Do some reading. Bogleheads can be a great resource.

I hope this is helpful.
Hey, thanks so much for the advice and the link to the wiki page.

Alan S. wrote:I don't think we established what age your first RMD will be based on. It may not turn out to be 25. What was your mother's date of death? And what was your age as of 12/31 on the year FOLLOWING her death?
My age as of 12/31 on the year following her death will be 26. My broker at TIAA-CREF is making me nervous as she hasn't been able to give me clear answers to my questions. I just talked to someone on her team today and they basically said could not give me a straight answer on how much I'm supposed to withhold for taxes and told me to ask my accountant. But isn't the amount I withhold for taxes supposed to be in proportion to my RMD?

Alan S.
Posts: 7504
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by Alan S. » Tue Dec 03, 2013 6:31 pm

I don't think we established what age your first RMD will be based on. It may not turn out to be 25. What was your mother's date of death? And what was your age as of 12/31 on the year FOLLOWING her death?
My age as of 12/31 on the year following her death will be 26. My broker at TIAA-CREF is making me nervous as she hasn't been able to give me clear answers to my questions. I just talked to someone on her team today and they basically said could not give me a straight answer on how much I'm supposed to withhold for taxes and told me to ask my accountant. But isn't the amount I withhold for taxes supposed to be in proportion to my RMD?blackwater


Then you will use age 26 for your first RMD divisor - 57.2, then 56.2 for the second year, 55.2 etc etc.

With respect to withholding, you can elect any % you wish, but some firms will not accept less than 10% unless you decline altogether. You should integrate the withholding into your other withholding from wages etc, and what you expect your total tax liability to be. If you will be in the 15% bracket and your other withholding is about equal to your former tax liability, then you would withhold 15% and be about right. Or you might be able to increase your salary withholding enough to cover additional tax liability. If you take the RMD late in the year you could take a look at where you are overall and each year select the amount you need withheld from the RMD to end up with the right amount. This is probably the best solution in many cases.

In summary, there is no separate withholding amount you should elect for just the RMD. It should be integrated into your total tax picture.

Levett
Posts: 4177
Joined: Fri Feb 23, 2007 2:10 pm
Location: upper Midwest

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by Levett » Tue Dec 03, 2013 7:59 pm

"TIAACREF broker"

I've been with TIAA for 45 years and have never met or talked with a TIAA "broker."

There are TIAA reps--they are not "brokers."

Your deceased mother's account more than qualified for a TIAA Wealth Manager.

http://www1.tiaa-cref.org/public/advice ... ce/wealth/

Get the name of the Wealth Manager and arrange for a face-to-face no matter how far you have to travel.

By the way, there is a TIAA discussion site at Morningstar.

Wouldn't hurt to talk to folks there.

Lev

jasg
Posts: 82
Joined: Wed May 08, 2013 7:10 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by jasg » Tue Dec 03, 2013 9:46 pm

Definitely meet with a TIAA-CREF Wealth Management Advisor.

Here is the M* forum.

http://socialize.morningstar.com/NewSoc ... 00044.aspx

Do not rush to transfer out of TIAA-CREF, check them out and compare what they offer and cost. I recently moved all my assets from other firms to them because their offerings were better for me than VG or Fidelity.

blackwater
Posts: 43
Joined: Sun Nov 24, 2013 3:17 pm

Re: Inheriting TIAA-CREF IRA and need to take RMDs...questio

Post by blackwater » Thu Dec 05, 2013 2:52 am

I just realized that my "broker's" title actually is "wealth manager"...I'm just getting acquainted with all this financial terminology and labels. Thanks everyone for the advice, I will head over the Morningstar TIAA CREf forums.

Post Reply