Retirement Income Options

When you retire, you have several options for receiving income from  your U-M retirement savings account(s). Contact a TIAA (800-732-8353) and/or Fidelity Investments (800-642-7131) retirement specialist to discuss the options that will best suit your needs.

1. Leave your money where it is.

By leaving the accumulations in your accounts, you postpone paying taxes on the contributions and earnings until you decide to take a distribution at a later date. The accumulations will continue to experience the investment performance of your chosen funds. In addition, you will have access to the many services TIAA and Fidelity offer to participants such as free publications, workshops, individual counseling, and their expert investment of your funds.

2. Elect a rollover.

You may rollover contributions and earnings to an IRA or to another employer’s plan at any age once you have retired. TIAA Traditional accumulations in the Basic Retirement Plan are rolled over in a nine-year period through a process called the TIAA Traditional Transfer Payout Annuity.

There are some important considerations to electing a rollover:

  • Minimum distribution grandfathering on pre-1987 403(b) amounts is lost: The IRS generally requires that an individual begin to take a minimum distribution from his or her account by age 72 (age 70½ if 70 ½ by December 31, 2019) once retired or terminated, or pay a severe tax penalty. Amounts attributable as of December 31, 1986 that are 403(b) are grandfathered, and are not subject to minimum distribution until age 75. Electing a rollover eliminates this grandfathering.

  • Loss of one of the exceptions to IRS early withdrawal penalty: There is an Internal Revenue Service (IRS) 10% penalty if a distribution is made prior to age 59 ½.  However, the penalty does not apply if you retire or terminate employment in the calendar year in which you reach age 55. This exception to the penalty applies to withdrawals from qualified retirement plans; it does not apply to IRA distributions.  If you rollover U-M Retirement Plan accumulations to an IRA and then take a withdrawal from the IRA prior to age 59 ½, this exception to the penalty is no longer available to you.

3. Take a cash withdrawal.

Partial, total, and systematic cash withdrawals allow you to receive income only as you need it and provide a high degree of flexibility. Your remaining accumulations continue to be tax-deferred until you take a distribution, and will continue to experience the investment performance of your chosen funds.

Keep in mind the following:

  • Income tax is due on cash withdrawals and an IRS penalty generally applies to withdrawals made prior to age 59½.

  • Cash withdrawals reduce any grandfathered pre-1987 403(b) accumulations you may have. This may be of importance if you are interested in minimum distribution as an income option.

  • Contributions and earnings are available for cash withdrawal at any age once you have retired from the university.

  • TIAA Traditional accumulations in the Basic Plan are not available for lump-sum cash withdrawals, rollovers, or transfers.  These transactions occur over a nine-year period through a process called the TIAA Traditional Transfer Payout Annuity.

4. Start a lifetime annuity with TIAA.

There is no requirement that you choose a lifetime annuity  from TIAA. However, it is the only income option that is guaranteed to last as long as you live. When you leave your employment with the university, you may choose to receive a lifetime annuity from TIAA at any age. The amount of the annuity will be calculated based on variables such as your life expectancy, your age at the time the annuity option is taken, and whether a spouse-survivor option is chosen. Ask TIAA to calculate various scenarios for you; they will prepare the income projections at no charge. Alternatively, you may create your own custom income illustrations at the TIAA website.

5. Required Minimum Distributions

Required Minimum Distributions (RMDs) are the minimum amounts you must withdrawal from your retirement accounts each year once you have retired or terminated employment and reach a certain age. Learn about Required Minimum Distributions.