One of the Great Mysteries of Life—How Should Professors Access their TIAA-CREF Accounts after Retirement?

by James Lange, CPA, Attorney

Before we start looking at the trees, let’s look at the forest.

Having There are important restrictions on the liquidity of many Traditional TIAA annuities. When I refer to liquidity here, I mean the ability to withdraw funds from the particular account and do whatever you want with the money. While liquidity is usually preferable, there are reasons you might be willing to own assets with restrictions on your liquidity that offer other advantages. For example, you likely own “vintage TIAA” that has liquidity restrictions but pays a better than average fixed income rate of return. So, our general approach is to learn about your restrictions and your options and only then decide what is the best course of action.

You likely remember when your retirement plan used to be known as TIAA-CREF. TIAA-CREF underwent a significant overhaul in 2016. Now it is simply known as TIAA. Over the years, they instituted many changes, and we attempt to cover both the classic information as well as incorporating the more recent changes.

The great mystery of how professors should access their TIAA and CREF accounts at retirement is complicated. You want to optimize your strategy, which usually involves minimizing taxes for both you and your heirs. To complicate life even further, different TIAA contracts have different distribution rules that vary not only among universities, but even different contracts with the same university. These TIAA distribution rules must be considered to come up with the best plan for retiring or retired professors.

You may remember when your retirement plan used to be known as TIAA/CREF. TIAA/CREF underwent a significant oIf you’ve had a long career, you likely have multiple contracts, even if you’ve been with the same university the entire time. That is why your retirement account statements have different line items for what seem to be the same investments. Each contract could have its own set of distribution rules and restrictions. If you’ve been with multiple universities, that complicates things even further. 

The great mystery of how professors should access their TIAA and CREF accounts at retirement is complicated. You want to optimize your strategy, which usually involves minimizing taxes for both you and your heirs. To complicate life eIt’s essential to get the basics down and know your options before making critical decisions that will affect both you and your family. Let’s start with summarizing the available options for accounts not subject to some of restrictions common to contracts that include the TIAA Traditional Annuity.

Let’s assume for the moment you have tax-deferred funds in a Traditional retirement account (where all your contributions and your employer contributions were on a pre-tax basis). This tax status is consistent with many types of retirement plans, including IRAs, TIAA and CREF accounts, a 403(b) plan, and retirement plans in the private sector like 401(k)s. It is also consistent with a 457(a) plan that is often available to professors. Unlike with Roth accounts, income taxes will eventually need to be paid on withdrawals. Let’s also assume that you are deemed retired or service-terminated from the university that was the source of your TIAA or CREF account, or other retirement plans generally offered through their 403(b) or 401(a) plans.

Most of the 632 university faculty clients I work with have far more money in their retirement plans than outside their retirement plans. If you are in the same boat, unless you plan to leave all this money to charity, someone, either you or your heirs, will eventually have to pay income taxes on the portion not being left to charity. The SECURE Act exacerbates the tax consequences. Figuring out the best strategies for mitigating taxes has always been a nightmare for professors with large retirement accounts. That nightmare became much worse when the SECURE Act passed. And with the likelihood of higher tax rates for both you and your heirs down the road planning to constrain a potentially enormous income-tax punch to your retirement plan becomes critical.

Distribution Options for CREF and Other Retirement Plans

Let’s assume for the moment you have tax-deferred funds in a Traditional retirement account (where all your contributions and your employer contributions were on a pre-tax basis). This tax status is consistent with many types of Let’s start by looking at the retirement distribution options for everything other than your TIAA Traditional accounts. This includes your CREF, Vanguard, Fidelity, and other pre-tax IRA accounts. Depending on the type of investments you have and your age, you may have full or partial liquidity of some of your retirement funds even if you are still working. Your IRAs are liquid whether you are working or not. But the crux of this chapter assumes that with regard to the contracts or accounts in question, that you are retired, or service terminated. So, what are your options?