What is the Transfer Payout Annuity? | Lifetime Annuity

We have alluded to the Transfer Payout Annuity from time to time, and now it gets the attention it clearly deserves. The Transfer Payout Annuity is literally an annuity, and it represents the mechanism by which funds are transferred from a TIAA accumulation to either one of the other investment choices in the TIAA-CREF family or as a taxable distribution after age 59 1/2 to the participant.

As we have discussed earlier, you can only withdraw funds from a TIAA accumulation in a Retirement Annuity through a lifetime annuity or a ten-year annuity while you are still employed. If you participate in a Group Retirement Annuity, your Transfer Payout Annuity may only have to run five years. If you wish to reallocate your investments while still employed, you would use the Transfer Payout Annuity to effect a multi-year transfer. TIAA will use then current annuity rates to establish the Transfer Payout Annuity and move it as you direct. As with any other type of annuity, you have made an irrevocable choice, with two exceptions described below.

In some instances, perhaps particularly around retirement, you issue simultaneous instructions for several different types of distributions. You must make sure that if you have chosen any annuity solutions, these will not restrict any revocable choices that you might wish to make. In short, you do not want to trip over your own feet. Let’s look at an example.

You decide to take minimum distributions (for now, this is the smallest amount that the Code allows you to withdraw from your account in any year) from your TIAA-CREF accumulation at retirement. You may also decide that the large accumulation that you have in your TIAA account should all or partially be moved to one of the CREF investment choices. In order to make the change, you start a Transfer Payout Annuity from TIAA to CREF, ensuring that the desired amount plus earnings will be transferred to your new choice(s) over ten years. You need to insure that you have enough free funds not bound up in the Transfer Payout Annuity to cover the minimum distribution payments that you will be receiving during the next ten years. Otherwise, you risk a 50% penalty for underpayments. As each year passes, the amount transferred out of TIAA will become available for purposes of making the mandatory minimum, and some planning and the judicious use of arithmetic will emerge as essential.

If most or all of your accumulation is in TIAA, then the amount transferred to the CREF side may cover your minimum distribution requirement. In that case, you need to time the distributions during the year so that they occur after the funds have been transferred from TIAA. Conversely, you may have most of your accumulation on the CREF side already, and you use the Transfer Payout Annuity to transfer any residual funds that may be on the TIAA side. In this instance, the CREF funds will almost surely cover any minimum distribution requirements. You may also choose to use the Transfer Payout Annuity to even out any imbalances in your portfolio mix.

Funds may move from the CREF side to the TIAA side at any time. Going the other way requires ten years. You may think that we are pounding this point to death. Our experience to date indicates that many participants are unaware of these facts and unaware too that, once begun, the Transfer Payout Annuity becomes irrevocable. Clearly, you can reinvest your funds as payments are made; however, the investment choice is locked for those assets still in transit. The interest earned is set by TIAA each year. Roughly speaking, you will see a transfer of a little more than 10% of your transfer assets each year.

We mentioned above that the irrevocability of the Transfer Payout Annuity has two exceptions. First, you may convert your Transfer Payout Annuity contract to a life annuity. If you make this election, then the remaining balance in your Transfer Payout Annuity contract will fund the lifetime annuity. This choice is final. Second, you may combine a lifetime annuity benefit with the Retirement Transition Benefit, discussed in part IV Those choices result in your receiving 10% of the balance in your account upon retirement or within the first year thereafter, and the remainder would convert to a lifetime annuity. Again, this choice is final.

To complete this discussion, we need to add some finishing touches detailing how the Transfer Payout Annuity is actually paid. You may elect to receive eleven payments, not just ten. The first payment occurs at the beginning of the first month after your contract is signed. This payment will equal 10% of your funds being transferred at that time. You will then receive one payment on each anniversary of the contract for the next ten years. Each payment will equal 10% of the remainder plus dividends, and the latter will vary to reflect interest market changes during the ten year period.

You may elect not to take the initial 10% payment, but to receive benefit payments on the ten anniversaries of the execution of the contract. TIAA-CREF must receive these instructions in letter form when you send in your paperwork to start the Transfer Payout Annuity. You may change your choice of target for the transfers, either a new or different fund within CREF or to yourself if you are over 59 1/2 years old.

Finally, remember that your choice of retirement investment income vehicles for your Transfer Payout Annuity transfer funds will depend on your employer’s plan. Before making any final decisions, make sure that your new retirement investment choices are supported by your employer.