CREF – Explanation re SEPP v. Fixed Period Payout

L1: CREF – Explanation re SEPP v. Fixed Period PayoutI currently have 2 SEPP plans — one with my IRA at Smith Barney and the other with my 403(b) with Nationwide Best of America Variable Annuity. I was 55 on 8/16/04. I began the 5 years of SEPP payments in July 2004 on both plans. All is going well on those 2 fronts. However, I am having a horrible time with TIAA-CREF. I have monies in both TIAA and CREF. I realize I cannot take SEPP payments on my TIAA monies, but I thought I could on my CREF monies. However, if I am understanding what TIAA-CREF is telling me in my 3 telecons with them, CREF monies are not eligible for SEPP plans, but only for fixed period payouts.۝ If the designated period of time is under 10 years, TIAA-CREF is required to withhold 20% income tax withholding from any distribution. As to a 10% early withdrawal penalty, TIAA-CREF will not say if I will incur this expense. They say they are not tax advisors, that the withdrawals would depend on whether they are qualified۝ or not. I guess this means what the monies for CREF would be used for?? Why can I not get a SEPP plan on my CREF monies?? I had to articulate the distinction between a SEPP plan and fixed payouts to them. They never made the difference between the two concepts clear in their writings or phone conversations, but once I rearticulated it back to them, then they agreed. I find TIAA-CREF very hard to work with and understand. I left my TIAA-CREF employer in 1984, but have let the monies sit there untouched all of these years. Now I want to take the CREF monies and turn them into a SEPP plan, but TIAA-CREF says no SEPP, only fixed period payout.۝ TIAA-CREF did say they could give me a 10-year payout, and then I did not have to withhold 20% income taxes, but they still would not say whether I would have to pay a 10% early withdrawal penalty. They are sending me a 10-year illustration. I am confused and hope this makes sense. I need some help and clarification. I don’t mind paying the withholding, but I do not want to pay a 10% early withdrawal penalty, but I would like access to my CREF monies in some way with the 10% penalty. Is this possible? If so, how? Thanks for this site! I first read about you in Newsweek۝ magazine earlier this year and have visited this site often.2004-12-01 10:14, By: mdargo, IP: [24.242.204.18]
L2: CREF – Explanation re SEPP v. Fixed Period PayoutHello mdargo:
What can I say; TIAA-CREF is like the government and well, the government is the government. Let’s set the SEPP plan at Smith-Barney aside as all seems to going well there. With respect to TIAA-CREF you are experiencing a conflict between plan rules (set by TIAA-CREF) and IRC/IRS rules. Said another way, TIAA-CREF has nothing to say about whether or not your withdrawals from them qualify under IRC 72(t)(2)(A)(iv). They either do or they don’t by applying revenue Ruling 2002-62. If those withdrawls qualify, then all is fine; if they don’t then you have a problem.
I realize TIAA-CREF is complicating and confusing the issue for you. With respect to determining whether or not you will owe the 10% surtax, forget them & look exclusively to the IRS rules.
TheBadger
wjstecker@wispertel.net2004-12-01 10:24, By: TheBadger, IP: [66.250.23.22]

L2: CREF – Explanation re SEPP v. Fixed Period PayoutThank you. This is very helpful. Could you please define/clarify “qualify”? Give examples? What are the IRS rules?The Badger wrote in part: “….. They either do or they don’t by applying revenue Ruling 2002-62. If those withdrawls qualify, then all is fine; if they don’t then you have a problem ….. I realize TIAA-CREF is complicating and confusing the issue for you. With respect to determining whether or not you will owe the 10% surtax, forget them & look exclusively to the IRS rules.”2004-12-01 10:41, By: mdargo, IP: [24.242.204.18]

L2: CREF – Explanation re SEPP v. Fixed Period PayoutHello mdargo:
Age 55 translates to a life expectancy of 29.6 years. The highest interest rate you were eligible to use was 4.67%. Therefore, the maximum annual withdrawal per $100,000 of assets was $6,302.10. If your annual withdrawal from TIAA-CREF is less than this amount, then everything is fine; just keep doing it for 5 years. Ifyour annual withdrawal is greater than this amount; you have a problem; not insoluable; but a significant problem.
TheBadger
wjstecker@wispertel.net
2004-12-01 10:58, By: TheBadger, IP: [66.250.23.22]

L2: CREF – Explanation re SEPP v. Fixed Period PayoutTHANK YOU!!!! This finally answers my question clearly and I know how to proceed. Most appreciated!!2004-12-01 11:26, By: mdargo, IP: [24.242.204.18]

L2: CREF – Explanation re SEPP v. Fixed Period Payoutmdargo:
I believe your TIAA-CREF account is governed by section 403(b) of the IRC. If it is, you do not have to establish a SEPP in order to be exempt from the 10 percent penalty tax because you have retired during or after the year you turned age 55.
Peace and Hope,
Joel L. Frank2004-12-01 11:48, By: Joel L. Frank, IP: [67.80.22.51]

L2: CREF – Explanation re SEPP v. Fixed Period PayoutHello Joel:
Certainly TIAA-CREF plan features & operations are governed by IRC 403(b). However, and it is a huge however, a 403(b) plan distribution is still governed by IRC 72. In this case, because the original poster left her employer sponsoring the 403(b) plan some years ago; e.g. before attaining age 55; she is ineligible to use the IRC 72(t)(2)(A)(v) — Separation of Service At Age 55 rule. Instead she must comply with IRC 72(t)(2)(A)(iv) — Substantially Equal Periodic Payments & therefore Revenue Ruling 2002-62.
TheBadger
wjstecker@wispertel.net
2004-12-01 12:04, By: TheBadger, IP: [66.250.23.22]

L2: CREF – Explanation re SEPP v. Fixed Period PayoutThank you for the important clarification.
Q.: What if an ee has three 403b arrangements from three different time periods and three different ers using three different carriers. These accounts have never been combined. Does the Separation from Service at age 55 rule pertain only to the last employment period (and thus only to the third 403b account)when s(he) separated fromservice in or after the year s(he) turned age 55?
Peace and Hope,
Joel2004-12-01 12:27, By: Joel, IP: [67.80.22.51]

L2: CREF – Explanation re SEPP v. Fixed Period PayoutHello Joel:
The “Separation of Service At Age 55” exception ONLY applies to assets held in the plan from which the employee has just separated. This then begs the question: well what about my 403(b) / 401(k) plan balances from prior employers? The answer lies in being proactive and potentiallyjust a little crafty by performing rollovers from old prior plans into one’scurrent plan; e.g. pull all of the money forward and usually this step needs to be performed before separation.
TheBadger
wjstecker@wispertel.net
2004-12-01 12:35, By: TheBadger, IP: [66.250.23.22]

L2: CREF – Explanation re SEPP v. Fixed Period PayoutToday I am confused again, even after re-reading the thread on this matter I originally posted yesterday. I appreciate everyone’s answers, but unfortunately I am still confused and struggling. My CREF account balance is VERY small — only $21,515. Nevertheless, I still want my money and the answers will still be instructive for everyone. Please clarify what my options are under CREF rules and IRC rules. How can I access as much of my CREF account balance as possible in 2005 forward without incurring a 10% early withdrawal period? On 1/1/05 I want to begin taking $$$ from my CREF account, either annually or monthly. How much can I get and when? Can I take it all in 2005, since it is so small? If not, is 5 years the minimum payout period? Does the 5-year commitment, or when I attain the age of 59-1/2, whichever is later, still apply? I became age 55 on 8/16/04. What interest rate should be used, if any? Amortized over my life expectancy of 29.6 years in 2004, or 28.7 Years in 2005? As you can see, I need HELP! Thanks!2004-12-02 10:11, By: mdargo, IP: [24.242.204.18]

L2: CREF – Explanation re SEPP v. Fixed Period PayoutIt appears that you have more problems than can really be answered in any online discussion area.
The easy part are the IRS Rules. You can use the calculators and the site’s FAQ to get the information that you need for a SEPP. Bill alsohas a great book sumarizing the SEPP requirements.In additiona, you many also want to consult with your tax advisor before making any distributions from your account.
Then you have the CREF rules. For starters, pull out your CREFcontract and read it for any restrictions and/or limitations. CREF contractrules are really up to the organization and have nothing to do with IRS rules.
If all else fails, hire a professional – there will be a cost, but it may also be your best option.
2004-12-02 10:22, By: Gfw, IP: [172.16.1.70]