McNab Financial

Financial Planning for employees who work at a university (or hospitals associated with a university) can be complex not only to the employees, but also to financial advisors not used to working with clients in this arena. Navigating through the complexities of this niche market requires the experience of working with university benefit offices and retirement plan providers.

Retirement Plan Providers

For employees in the private sector, they typically have the option of a single retirement plan provider. However, university employees typically have the choice of multiple retirement plan providers. These providers are commonly companies such as TIAA-CREF, Fidelity, VALIC, and Vanguard. Each one of these companies has strengths and weaknesses. Professors and other employees have to be careful navigating through the choice of carriers and take into account fees, choice of funds, and restrictions on certain funds to make the most appropriate choice and avoid unwanted mistakes. Two of the most common mistakes include investing in high cost funds or an account that hinders liquidity and locks up the ability to take a lump sum or transfer money – even in retirement.

Unique Accounts and Fund Choices

Due to the type of retirement plan (403(b) and 401(a)) and the uniqueness of the retirement plan providers, employees at universities are offered funds that are often hard to understand or miscategorized by employees and advisors alike. For example, TIAA-CREF and VALIC offer fixed or guaranteed accounts which may have distribution restrictions. TIAA-CREF offers a very unique real estate account often miscategorized by advisors. Often, Fidelity and Vanguard offer a plethora of funds which investors find hard to sift through to put together the highest quality portfolio. In addition to these fund choices, each company sets up a different structure for receiving employer and employee contributions. Understanding each fund, how to put together the most efficient portfolio, and where contributions are places are the foundation of an asset allocation strategy.

Retirement Distribution Choices

The decisions do not get any easier heading into retirement. Distribution options include systematic withdrawals, lifetime income choices (annuitization), interest-only, transfer payout annuities, required minimum distributions, and lump sum options. Each one of these retirement distribution options then has multiple decisions to be made – some which are permanent. Choosing and monitoring the correct income options and distribution amounts are key to flexibility and longevity of a retirement distribution strategy.

Ease into Retirement

Unlike the private sector, many university employees are able to ease into retirement by working out an agreement to work part-time, while receiving benefits, prior to retirement. This allows a professor or professional at a university to ease into retirement while still being a part of the university.

Conclusion

As you can see, there is a complex web of decisions to be made up to and through retirement for employees in the academic, medical and cultural fields. I can make an easy argument that the consequences of failure are much too great to make mistakes. Mistakes can be made by trying to manage these decisions on your own, hiring the incorrect advisor, or relying on shallow guidance from a retirement plan provider.

This article is written by Kevin J. McNab. Kevin is President of McNab Financial, LLC and is a CFP®, ChFC®, and CRPC®. McNab Financial specializes in working with clients in the academic and medical fields. This article is not intended to contain investment advice. Please contact your investment professional to discuss funds discussed in this article. McNab Financial, LLC is a Registered Investment Advisor in the State of Colorado.

Most Americans think of doing their taxes as a daunting task that takes place every twelve months. Reactions differ from shock due to the amount owed all the way to joy from planning ways to spend a refund. Most of us want to forget about tax season the minute our returns are filed. Just because tax season is over, doesn’t mean you should forget about taxes until next year. Now is the time to start planning for next year.

A good accountant and investment advisor can team up to plan throughout the year to help you save thousands in taxes. When it comes to your investments, this may mean managing a tax effective portfolio, contributing to a 401(k), or taking distributions from the correct investments and accounts.

Business owners often can save money in tax by setting up the correct business entity, using a SEP IRA or 401(k), and working with a good accountant to make sure they are maximizing their deductions.

Just when you thought it was time to forget about taxes, it’s the perfect time to start planning.

This article is written by Kevin J. McNab. Kevin is President of McNab Financial, LLC and is a CFP®, ChFC®, and CRPC®. This article is not intended to contain investment or tax advice. Please contact your investment and tax professional to discuss investments discussed in this article. McNab Financial, LLC is a Registered Investment Advisor in the State of Colorado.

TIAA-CREF has multiple withdrawal and transfer rules which are different depending on the type of contract, type of accounts, and amount in each account. This makes it very difficult for their own investors and advisors to make informed investment decisions. In this article, I will address one unique option for taking money out of the TIAA Traditional Account – the Transfer Payout Annuity (TPA).

TIAA Traditional

The TIAA Traditional Annuity’s primary goal is to protect an investor’s principal while proving the highest rate of return possible. This return comes in the form of a guaranteed return (1% to 3%) with the addition of a dividend (or additional return) at the discretion of the TIAA Board of Trustees. The additional dividend, if any, is primarily determined by current interest rates. In order to offer a guaranteed return, the TIAA Traditional Annuity invests in long-term, relatively illiquid assets. This is the reason a distribution cannot be taken in a lump sum from certain contracts.

Transfer Payout Annuity

This sets the stage for a discussion on Transfer Payout Annuities. However, there are multiple types of contracts TIAA-CREF offers which have different rules, time frames, and possible penalties for moving TIAA Traditional. A TPA allows TIAA Traditional investors to move an amount from a Retirement Annuity or Group Retirement Annuity (employer matching accounts) in 10 annual payments over a 9-year period. Each installment includes a portion of principal and interest. Depending on employment status and rules of the university’s plan, each payment can be transferred to another fund within the contract (CREF), rolled over to an IRA, or taken as a cash distribution.

Conclusion

This provides a glimpse of how a Transfer Payout Annuity works and the reason behind the withdrawal restriction. As mentioned previously, a TPA applies to Retirement Annuities (RA) and Group Retirement Annuities (GRA) with TIAA-CREF. Distributions are different from TIAA Traditional within other contracts offered by TIAA-CREF including Retirement Choice, Group Supplemental Retirement Annuities, and even a GRA mentioned above at retirement.

This article is written by Kevin J. McNab. Kevin is President of McNab Financial, LLC and is a CFP®, ChFC®, and CRPC®. McNab Financial specializes in working with clients in the academic and medical fields. This article is not intended to contain investment advice. Please contact your investment professional to discuss funds discussed in this article. McNab Financial, LLC is a Registered Investment Advisor in the State of Colorado.