Weigh Your Options before Withdrawing Retirement Funds

Article by TIAA, U-M partner for retirement investment plans

The COVID-19 pandemic has caused many to evaluate their finances. While the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act allows employees and retirees who qualify to access retirement funds through Dec. 31, 2020, it’s important to understand the impact of such a decision.

Discover Your Options

You can get a personalized review of your options by meeting with a TIAA or Fidelity Investments financial consultant. Even if you’re working with an outside advisor you trust, getting a second opinion can be beneficial, especially if you’re considering a change that involves a significant amount of money.

Apprise Before You Act

With any type of investment, it’s important to understand the following:

  • Investment fees – All investments have fees; the investments in the U-M Basic Retirement Plan are some of the lowest available. Be sure you understand your current fees and compare them to potential replacement investments.
  • Advisor fees – All outside advisors charge a fee for their guidance. TIAA and Fidelity are the only financial investment companies officially associated with U-M retirement plans. This partnership includes free consultations. If you work with or are considering an outside advisor, review these tips to be sure you understand the fees involved.
  • Taxes – Withdrawing funds from U-M retirement plans may trigger a significant tax bill, and in some cases additional penalties. While TIAA and Fidelity consultants can’t provide tax advice, they may be able to help you understand general tax implications of your investment decisions.

CARES Act-related withdrawals require that you pay taxes on the amount you withdraw. Payments can be spread over three years, if needed.

  • Potential risks/returns – Any advisor should be able to explain why one investment might make sense over another, along with the associated risks and fees. For example, you should understand the tradeoffs between potentially paying a large tax bill now to withdraw your money or move it to a new investment, versus the amount of time it may take to make up for that loss. Keep in mind that past performance of an investment doesn’t guarantee it will generate the same level of performance in the future.

Ask for Assistance

Before making any investment changes involving your U-M plans, review your options with a TIAA or Fidelity consultant. For the safety of all involved, consultations are now conducted by virtual visit or phone. To schedule an appointment:

Learn what to expect before your one-on-one session from this brief video.

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