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Changing jobs — and dealing with old retirement plans — involves a fair amount of planning and additional administrative responsibility. Choosing an investment company to handle your accounts is also a time-consuming process.
Our research shows that neglected 401(k)* plans — or retirement savings accounts left behind with old employers — can cost investors an average of $700,000 in lost retirement savings. This comes from random asset allocation, high fees, and poor investment choices. This is why rolling over your 401(k) can be a boon for your nest egg.
Here, we’ll discuss how to roll over your TIAA (sometimes called “TIAA-CREF”) 401(k) to an account — and financial institution — of your choice.
*401(k) plans are considered qualified retirement plans under current ERISA regulations.
A rollover is nothing more than a funds transfer from one retirement account to another. Most commonly, rollovers are done when people change jobs, retire, or want to consolidate their retirement savings.
Critically, when you perform a rollover of your employer-sponsored retirement plan, you should be moving money between accounts with the same tax treatment. For instance, tax-deferred (or “pre-tax”) 401(k)s should roll into other pre-tax accounts, like traditional IRAs, and tax-exempt accounts, like designated Roth 401(k)s, should roll into after-tax Roth IRAs. Consistency is important here.
When it comes to moving your New York-based TIAA 401(k), you have two realistic choices:
* As an example, a $100,000 401(k) balance would only net $80,000 if you choose an indirect rollover. But you still might elect this option if you can come up with the funds by other means.
Understanding the difference between the two rollover types is key before you attempt to move money around. As noted, mistakes during the rollover process can cause issues with the IRS — not to mention the expense involved.
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Rolling over a TIAA 401(k) requires a few steps, but it’s a relatively straightforward process.
By following the steps outlined below, you can complete your rollover with ease.
Before you begin the rollover process, first decide where you’re going to send the money. This could either be a new 401(k) plan with a current employer, or it could be an IRA at a financial institution of your choice.
Also included in the preparation stage is gathering relevant information and documents, such as:
Try to determine in advance the type of rollover you want to do — whether it’s a direct or indirect rollover. In the grand majority of cases, we recommend going with a direct rollover, though your circumstances may vary.
Now it’s time to initiate your TIAA 401(k) rollover by contacting TIAA and filling out any required forms. You’ll also want to contact your new provider to fill out any paperwork they need and to confirm your new account type and account number.
Different stages of the process may involve providing personal identifying information, so be ready in the event you need to authenticate yourself.
Finally, you’ll need to review and sign any necessary documents to release the TIAA to your new provider (check tiaa.org for more details). Once these are complete, all you need to do is wait for the funds to arrive at your destination account. As soon as the funds arrive, you can invest your retirement assets according to your broader asset allocation (i.e., equities, bonds). You can also set up your account beneficiaries as part of the finalization process.
Make sure to keep on top of this: you’ll need to ensure that the funds are successfully transferred from TIAA to the new institution — ideally by direct transfer. You can follow up periodically with TIAA to make sure they’re in receipt of all necessary documents, and you can give the heads up to your new provider so they know to expect an incoming rollover.
If you do elect to do an indirect rollover, make sure to re-deposit your gross 401(k) balance to your new tax-advantaged savings account within 60 days. If you fail to do this, you’ll be hit with federal income tax plus an early withdrawal penalty. These expenses are avoidable, so if you do choose the indirect option, make sure the money finds its way to your new account within the timeframe.
As noted above, rolling over a TIAA traditional 401(k) can be an effective way to consolidate retirement savings and to take advantage of better investment options. You’ll also find that rollovers often lower your overall fee burden, especially if your old employer’s plan leans on the expensive side.
However, there are some important considerations to keep in mind to ensure a successful rollover.
Absolutely. Be sure to contact Fidelity Investments (see their website for their telephone number) to open an account (the account that will receive the money) and confirm the paperwork they need to effect the transfer. You will also need to initiate the transfer from TIAA by calling a plan representative. Have your new Fidelity account number and account type to share with the TIAA transfer team; this way, they’ll be ready to receive your account balance.
As long as you’re no longer employed by the company that used TIAA as its 401(k) plan administrator, you can transfer out your TIAA account at any time. You can also withdraw money from your 401(k) (watch the taxes and penalties) at any time, even if you’re still employed at the same job.
You can draw retirement income from your 401(k) penalty-free after you hit age 59.5. If you choose, you can turn this income into a quasi-retirement annuity.
Yes. Make sure you’ve chosen a new provider and opened an account at that provider first. Also, be sure that the accounts you’re working with have the same tax status (i.e., pre-tax to pre-tax, after-tax to after-tax).
If you’re working with pre-tax accounts, you’ll be faced with Required Minimum Distributions (RMDs) once you hit your early 70s (currently age 73, as of 2023). These minimum distributions aren’t a factor if you have Roth accounts.
No doubt, changing jobs comes with a great deal of administrative work. Rolling over your 401(k) is part and parcel of that process.
Working with a trusted partner can help ease the stress associated with a big life change. That’s where Capitalize comes in.We have a lengthy track record of helping retirement savers across the country successfully roll over their old employer savings plans. It just takes a few minutes to get started today!
If your situation calls for it, consider working in tandem with a qualified tax advisor to help you manage your income tax liabilities.
