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TIAA Traditional Withdrawal Options: Your Complete Guide to Four Payout Choices

If you have money in TIAA Traditional, you’ve probably wondered what your options are when it’s time to take your money out for retirement. Understanding your TIAA Traditional withdrawal options is one of the most important decisions you’ll make in your retirement planning journey. Yet, it’s also one of the most confusing aspects of TIAA retirement accounts.

What is TIAA Traditional?

It’s a fixed annuity that’s part of your 403(b) retirement account, specifically designed for employees of:

  • Non-profit organizations
  • Hospitals
  • Universities
  • Schools

Unlike variable investments that fluctuate with market performance, your TIAA traditional annuity provides stability through guaranteed minimum interest rates and participation in TIAA’s carefully managed general account.

Retirement planning decisions involving TIAA Traditional are particularly complex because it’s a unique product with specific rules and options. While this guide covers the four main payout choices available, it’s important to consider how these options align with your overall financial picture, including:

  • Other income sources
  • Other investments
  • Retirement timing
  • Risk tolerance
  • Legacy goals.

Understanding Your TIAA Traditional Options

TIAA Traditional is different from the variable annuity options in your 403(b) account, such as CREF stock, CREF growth, or CREF bond. While those investments tie your returns to market performance, TIAA Traditional provides returns based on TIAA’s general account performance. This massive, conservatively managed portfolio includes traditional bonds, commercial real estate, agriculture, timber, and other stable investments that TIAA has been managing for over 150 years.

There are several types of TIAA traditional contracts, and each has different rules and interest rates. You might have older contracts from contributions made decades ago, or newer contracts from recent contributions. Some contracts are fully liquid (marked with an “S” for supplemental), while others have liquidity restrictions. Furthermore, there are even certain “Plan Rules” within your organization that might create additional complexity around the availability and liquidity of funds.  Understanding which type of contract you have and your plan’s rules is crucial for determining your available options.

Option 1: Required Minimum Distribution (RMD) or Minimum Distribution Option (MDO)

The first way to access your TIAA traditional funds is through the required minimum distribution option, also called the minimum distribution option by TIAA. This option becomes available when you reach the age when the IRS requires you to start taking distributions from your tax-deferred retirement accounts.  If you miss an RMD, you could be subject to a 25% penalty! 

The RMD age has changed over the years due to legislation. Previously set at 70.5, it was raised to 72 by the SECURE Act. RMD now stands at 73 or 75, depending on your birth year. If you were born in 1960 or later, your required minimum distribution age is 75.

How the Math Works

The IRS provides a life expectancy table that determines your distribution factor based on your age. For example, if you turn 75 in 2025, your life expectancy factor is 24.6. You divide your account balance by this factor to determine your required distribution amount.

Example

Let’s say you have $1 million in a TIAA traditional account. At age 75, you would divide $1 million by 24.6, resulting in a required distribution of approximately $40,650, or about 4% of your account balance. As you age, your life expectancy decreases, which means your required distributions increase. By age 90, with a life expectancy factor of 12.2, that same $1 million would require a distribution of nearly $82,000.

This creates what I like to call the “Tax Trap of 401ks and IRAs.” If you have substantial Social Security payments and perhaps a pension, and you don’t need these tax-deferred assets for current income, those increasing RMDs can push you into higher tax brackets and trigger additional costs like Medicare surcharges or IRMAA.

The advantage of this option is continued tax deferral while pulling out the minimum required by the IRS. Before reaching RMD age, you can let your account continue growing tax-deferred without being forced into any payout structure. You can also change to other options later if your needs evolve.

Option 2: Interest-Only Withdrawals

The second option allows you to withdraw only the interest your TIAA traditional account earns while leaving your principal intact. Each of your TIAA traditional accounts has an associated interest rate that depends on when you made the contributions and what type of contract you have.

Contributions made in the 1970s, 1980s, and 1990s typically carry much higher interest rates than contributions made after 2009, when interest rates dropped to near zero following the Great Recession. However, even recent TIAA traditional contributions often provide interest rates of 4% to 4.5% or higher, which compare favorably to traditional bond investments that have averaged less than 2% annually over the past 10-15 years.

The interest rates also vary by contract type. Contracts without an “S” designation (such as RA and GRA contracts) typically offer higher interest rates but come with liquidity restrictions. These are usually funded by employer contributions. Contracts with an “S” designation (SRA and GSRA contracts) are supplemental contracts funded primarily by your own contributions. They offer slightly lower interest rates but provide full liquidity.

Example

Using our $1 million example with a combined interest rate of 4.5%, your account would generate approximately $45,000 in annual interest. With the interest-only option, you could receive this $45,000 as income while preserving your $1 million principal balance. You can typically choose to receive these payments monthly, quarterly, semi-annually, or annually, depending on your cash flow needs.

This option works well if you need supplemental income but want to preserve your principal for future needs or to leave as a legacy. The interest payments from pre-tax 403b accounts are treated as taxable income in the year you receive them, just like any other distribution from a tax-deferred account. However, there are usually restrictions on how frequently you can start and stop these payments. You’ll want to confirm the specific rules for your contracts.

Option 3: Annuitization – Creating a Lifetime Income Stream

The third option, and what many experts consider the most underutilized, is annuitization. This means exchanging your account balance for a guaranteed income payment that will continue for as long as you live, or for as long as you and your spouse live if you choose a joint option.

When you annuitize your TIAA traditional account, you’re essentially trading your account balance for an income stream you can never outlive. The amount of income depends on several factors:

  • Your age
  • Your account balance
  • The interest rates of your various contracts
  • The payout option you select

Real Example

A 67-year-old client with various TIAA traditional contracts dating back decades received an illustration showing a single life payout rate of 8.81% with a 10-year guarantee period. This means that for every $100,000 annuitized, this client would receive $8,810 annually for life.

The 10-year guarantee provides protection if you die early in retirement. If you pass away within 10 years of starting the annuity, payments continue to your beneficiary for the remainder of the guarantee period. So, if you die after five years, your beneficiary receives payments for five more years.  But if you outlive the 10-year guarantee period, there is no death benefit.

You can also choose joint life options that continue payments as long as either you or your spouse is alive. These typically offer lower payout rates because they’re expected to pay out longer, but they provide valuable protection for surviving spouses.

Payout rates vary significantly depending on when you made your contributions. Older contracts often have much higher payout rates. I’ve seen TIAA Traditional payout rates as high as 10% per year on older contracts from the 80s and 90s. 

TIAA’s long history and conservative management approach allows them to offer competitive rates to existing participants.

It’s important to understand that annuitization is an irrevocable decision. Once you exchange your account balance for the income stream, you cannot change your mind or access the principal. Additionally, these annuities are generally designed to be fixed with no guarantee of increased payments over time. 

This brings inflation risk into play more so than other investments.  However, the high baseline guaranteed income can stack on top of Social Security and allow for your more aggressive investments to compound longer.  Many are surprised that this can result in a higher legacy amount despite the lack of a death benefit.

Option 4: Transfer, Rollover, or Liquidation

The fourth option is to move your money out of TIAA Traditional entirely. Your ability to do this depends on what type of contracts you have.

If your TIAA traditional is in supplemental contracts (SRA, GSRA, and RCP), you have full liquidity. You can

  • Take the money out as a lump sum
  • Roll it into your own IRA
  • Transfer it to other investments within your 403(b) plan without restrictions.

However, if your money is in non-supplemental contracts (RA, GRA, or RC), you face liquidity restrictions because these contracts were funded primarily by employer contributions. For these illiquid contracts, you can use what’s called a Transfer Payout Annuity (TPA). A TPA provides your money in equal installments for a term determined by the type of contract.

  • RA Contracts: 10 payments over nine years
  • RC Contracts: 7 payments over 6 years
  • GRA Contracts: 5 payments over 4 years

If you elect to receive these payments as cash, each payment is taxable income. If you roll the TPA payments to an IRA or other qualified account, there are no immediate tax consequences.  You’ll need to check with TIAA to understand the specific rules for your contracts.

Many people choose this option because they’re frustrated with TIAA Traditional’s complexity or because they want to consolidate and simplify their retirement accounts. However, this decision deserves careful consideration because you’re giving up some unique benefits that are difficult to replicate elsewhere.

The Most Overlooked Option: Why Annuitization Deserves Serious Consideration

After working with hundreds of TIAA participants over the years, one pattern became clear.

Most people immediately gravitate toward option four (getting their money out) without seriously considering annuitization. This happens for several understandable reasons.

First, annuities have developed a negative reputation in the financial industry. Much of this stems from how annuities are often sold in the marketplace. Some salespeople are taking advantage of seniors and retirees, focusing on their own commissions rather than clients’ needs. This has created widespread distrust of anything labeled as an “annuity.”

Second, TIAA Traditional is genuinely complex, and many people simply want to move their money to something they understand better. The various contract types, liquidity restrictions, and payout options can feel overwhelming.

However, this rush to liquidate often overlooks the significant value that TIAA Traditional can provide in a well-designed retirement plan. Consider these advantages:

Bond Alternative

Over the past 10-15 years, traditional bonds have provided returns of less than 2% annually while experiencing significant volatility. TIAA traditional accounts typically earn 4% to 4.5% or more annually and never decrease in value. They can serve as an excellent bond alternative, allowing you to be more aggressive with your other investments.

Guaranteed Income Foundation

The annuitization option provides a guaranteed income foundation that reduces pressure on your other investments. With a baseline income from Social Security and a TIAA traditional annuity, you can afford to take more risk with your remaining investments to capture potential upside.

Superior Payout Rates

The payout rates available through TIAA traditional annuitization often exceed what you can obtain by purchasing commercial annuities in today’s market. The 8.81% payout rate in our example would be very difficult to replicate elsewhere.

Longevity Insurance

If you expect longevity for you or your spouse, the annuity continues paying regardless of how long you live. TIAA reportedly has clients in their hundreds who are still receiving payments.

The key is not to annuitize everything, but to consider using TIAA Traditional as one component of a diversified retirement income strategy. You might annuitize a portion of your TIAA Traditional to create a guaranteed income floor, while keeping other assets liquid for emergencies and growth potential.

Making the Right Choice for Your Situation

Choosing among these four options requires careful consideration of your complete financial picture. Here are some key factors to evaluate:

Income Needs

How much income will you need from your retirement accounts? If you have substantial Social Security and pension income, you might prefer to let the TIAA traditional continue growing tax-deferred. If you need current income, the interest-only or annuitization options might be more appropriate.

Other Assets

What other liquid assets do you have available for emergencies? If most of your wealth is in retirement accounts, maintaining some liquidity is important. But if you have substantial taxable investments or other liquid assets, you might be more comfortable annuitizing a portion of your TIAA Traditional.

Risk Tolerance

How comfortable are you with market volatility in your other investments? If TIAA Traditional serves as your bond allocation, you might be able to invest more aggressively elsewhere.

Legacy Goals

Do you want to leave assets to heirs? Annuitization reduces the assets available for inheritance, whereas the other options preserve more of the principal.  With that said, if you do live a long time, the benefits of annuitization could allow for your growth assets to compound without selling at the wrong time.

Tax Considerations

How will each option affect your overall tax situation? Large RMDs might push you into higher tax brackets, while annuity payments provide predictable taxable income.

Health and Longevity

Your health status and family history of longevity should influence your decision. If you expect a long retirement, annuitization becomes more attractive.

Conclusion

Your TIAA traditional account represents a valuable and unique retirement asset that deserves careful consideration. While the complexity can be frustrating, understanding your four main options – RMD/MDO, interest-only, annuitization, and rollover/liquidation – helps you make an informed decision that aligns with your retirement goals.

The most important takeaway is not to rush into liquidating your TIAA traditional simply because it’s complex. The guaranteed annuity rate and lifetime income options available through TIAA Traditional are increasingly rare in today’s financial marketplace. These benefits, combined with TIAA’s 150+ years of experience and conservative management approach, make TIAA Traditional a potentially valuable component of your retirement income strategy.

Before making any decisions, consider how each option fits within your overall financial plan. Think about your income needs, risk tolerance, legacy goals, and tax situation. If you’re unsure, consider working with a fee-only financial planner who can provide objective guidance without trying to sell you additional products.

Remember, you don’t have to choose just one option or make all decisions at once. You might use different options for different portions of your TIAA Traditional balance, or adjust your approach as your needs evolve in retirement. The key is understanding your choices so you can make decisions that support your long-term financial security and retirement goals.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

7 Reasons Not to Do a Roth Conversion

I’ve never met anyone who wants to overpay the IRS. As a result, one of the number one topics we discuss with clients is how to reduce their lifetime tax bill. More specifically, whether or not they should consider a Roth Conversion with some of their IRA dollars.

Before we talk about the seven reasons that might cause you to delay, reduce, or reconsider doing a Roth conversion, let’s look at some big news brewing in Washington related to taxes on Social Security.

Social Security has a complicated formula to determine how much of your benefit will be included in your taxable income. On the low end, your entire benefit could be tax-free (0% included in taxable income). On the high end, up to 85% of your Social Security benefit could be taxable.

Senior Citizens Tax Elimination Act

Congressman Thomas Massey from Kentucky, along with 29 Republican co-sponsors, has introduced the Senior Citizens Tax Elimination Act. To provide some context, prior to 1986, Social Security benefits weren’t taxable at all. In 1986, Social Security implemented revisions and created the provisional income formula that determines how much of your benefit is included in taxable income.

Massey’s bill would essentially repeal the inclusion of Social Security benefits in taxable income altogether. This would also include tier one railroad benefits (pensions from working at the railroad). The bill was first introduced last year, but now it’s legitimate. It’s in the House and seems to have a decent chance of passing.

However, there are costs associated with implementing this bill. According to the Committee for Responsible Government, this is estimated to cost taxpayers about $1.8 trillion over the next decade. When we couple this with Social Security’s projected insolvency date of around 2033-2034, it raises questions about funding.

Currently, 80% of Social Security benefits are funded by payroll taxes from current workers. The Social Security trust fund supplements the remaining 20%. If benefits become tax-free, this could accelerate the insolvency date.

So, how will they pay for this bill? My crystal ball says taxes will increase in some way to fund the deficits projected for Social Security and Medicare.

Why is this relevant to our Roth conversion discussion? Because, while we know what taxes look like today, it’s virtually impossible to be 100% certain about future tax rates.

What is a Roth Conversion?

A Roth conversion involves moving or converting funds from a tax-deferred vehicle (like a traditional IRA, 401(k), 403(b), or TSP plan) into a tax-free vehicle. In exchange for doing this, you elect to pay the taxes now.

Why would you do this? At one point, you believed deferring taxes was the way to go, or maybe you didn’t have access to a Roth account. This is pretty common—15-20 years ago, many employers didn’t offer Roth 401(k) plans. But now you have the ability to convert some of those assets to Roth.

The benefit of a Roth account is tax-free growth going forward, as opposed to tax-deferred growth. But there are situations where converting might not be the best strategy.

1. You’re in a Higher Tax Bracket Today Than You Will Be in the Future

The first reason to reconsider a Roth conversion is if you’re currently in a higher tax bracket than you expect to be in the future. There are several scenarios where this might happen:

When you retire, your W-2 income or self-employment income disappears. Your only income might be capital gain distributions, dividends, interest, a small pension, or IRA distributions. If your tax bracket will drop substantially in retirement, it might make sense to wait until you enter what we call the “Roth conversion window.” This window is after retirement, but before you start taking Required Minimum Distributions (RMDs) and/or Social Security.

Your income might be temporarily high due to things like

  • Selling a business, stock, or rental property
  • Receiving a large bonus
  • Inheriting money

Doing a Roth conversion during these high-income years could push you into an unnecessarily higher tax bracket.

You might believe taxes will decrease in the future due to legislative changes, making it beneficial to wait for potential tax cuts before converting.

In short, if you expect your income bracket to drop at some point, it might be worth evaluating conversions at that time instead of now.

2. You’re Leaving a High-Income Tax State for a Low or No-Income Tax State

According to the Tax Foundation, state income taxes significantly influence net migration in the U.S. The top third of states with positive net migration have an average state income tax of about 3.5%. The bottom third average nearly double that at 6.7%.

I don’t believe you should move to a state in retirement solely because of taxes. However, if you’re planning to move from a high-tax state like New Jersey, New York, or California to a low or no-income tax state, you might consider waiting to do Roth conversions until after your move.

You could potentially benefit from both a lower federal bracket at retirement and little to no state income tax, maximizing your tax savings on the conversion.

It will be interesting to see how migration patterns evolve as companies bring employees back to in-person work. For retirees with the flexibility to move anywhere, taxes will likely remain an important consideration.

3. Your Heirs Are in Lower Tax Brackets

The SECURE Act, passed at the end of 2019, eliminated the “stretch IRA” for most beneficiaries. Previously, individuals who inherited an IRA could stretch distributions over their life expectancy. Now, most non-spouse beneficiaries must liquidate the account within 10 years.

This applies to both traditional IRAs and Roth accounts. The key difference is that Roth account distributions during those 10 years are tax-free to beneficiaries, while traditional IRA distributions are fully taxable.

If your beneficiaries are in a very low tax bracket, while you are in a higher tax bracket, there could be an argument for not converting. For example, if you’re in the 24% or 32% bracket due to Social Security, a pension, and investment income, while your children are in the 10% or 12% bracket, it might make more sense to leave those assets to your heirs and let them pay taxes at their lower rate.

The challenge with this approach is that it requires knowing exactly when you’ll pass away and what tax bracket your children will be in at that time. Your 25-year-old child who’s currently in graduate school with no income might eventually have high earning potential or start a successful business, putting them in a higher tax bracket than you.

Additionally, even if your beneficiaries are in a relatively low tax bracket, inheriting a large IRA could push them into a higher bracket during the 10-year distribution period. For example, if your IRA is worth $2 million, your beneficiaries would need to distribute about $200,000 annually over 10 years, potentially pushing them into a much higher tax bracket regardless of their current income.

You should also consider the distribution of your assets between taxable, tax-deferred, and tax-free accounts when making this decision.

4. Hidden Taxes Could Reduce the Benefit of Converting

Any Roth conversion will increase your taxable income in the year you do the conversion, even though it doesn’t put cash in your bank account. This can trigger various “hidden taxes” based on calculations like modified adjusted gross income (MAGI), taxable income, or provisional income.

Here are some examples:

IRMAA Surcharge: The Income-Related Monthly Adjustment Amount applies once you’re Medicare eligible. While Medicare Part A is free, Part B has a premium (about $185 for 2025). Part D depends on your chosen drug plan. If your income exceeds certain thresholds, you’ll pay additional surcharges for both Part B and Part D. These surcharges can range from $1,000 to over $6,000 per year per person.

ACA Premium Tax Credits: If you retire before 65 and use the Affordable Care Act for health insurance, you might be eligible for premium tax credits based on your modified adjusted gross income. Roth conversions could reduce these credits.

Net Investment Income Tax: If your MAGI exceeds $250,000 (married filing jointly) or $200,000 (single), there’s an additional 3.8% tax on investment income like dividends, interest, and rental income.

Capital Gains Taxes: If you’re married filing jointly and your taxable income is below $96,700 for 2025, you don’t pay any tax on long-term capital gains. A Roth conversion could push you above this threshold.

Social Security Taxation: As mentioned earlier, between 0% and 85% of your Social Security benefits could be taxable depending on your provisional income. Roth conversions can increase this percentage.

While these hidden taxes aren’t necessarily reasons to avoid Roth conversions entirely, they should factor into your decision about timing and amount.

5. You’re Planning to Donate to Charity During Your Lifetime or at Death

Traditional IRAs are some of the best accounts to donate to charity. If you convert all your tax-deferred assets to Roth, you lose this potential tax benefit.

One powerful strategy is the Qualified Charitable Distribution (QCD). Once you turn 70½, you can donate up to $107,000 (in 2025) directly from your IRA to charity without recognizing an taxable income. What makes this even more powerful is that once you begin taking Required Minimum Distributions (RMDs), you can reduce your RMD dollar-for-dollar up to that cap.

For example, if your RMD is $50,000 and you typically donate $30,000 to charity, you could do a $30,000 QCD directly from your IRA. This would reduce your RMD to $20,000, essentially making that $30,000 completely tax-exempt—even better than a tax deduction.

Similarly, if you’re planning to leave money to charity at death, your traditional IRA is a great asset to use. While your non-spousal beneficiaries (typically children or nieces/nephews) will have to pay taxes as they withdraw from the inherited IRA over the 10-year period, charities don’t pay any taxes on these distributions.

This doesn’t mean you shouldn’t convert at all, but you might consider not converting as much or as aggressively if charitable giving is part of your plan.

6. You’re Planning to Self-Fund for Long-Term Care Costs

Long-term care is one of the most significant risks retirees face today. The uncertainty lies in whether you’ll need care, and if so, for how long—six months or ten years? The costs can be substantial, often exceeding six figures annually.

Some people buy long-term care insurance, while others plan to use their own assets. If you’re in the latter group, there’s an interesting tax angle to consider. While IRA distributions are taxable, there’s a deduction if your medical costs exceed 7.5% of your adjusted gross income. These expenses can be added to your itemized deductions.

If you need long-term care later in life, it’s almost certain your expenses will exceed that 7.5% threshold, given the high costs involved. If you have an IRA you can tap into to pay for care, you might be able to deduct some of those distributions because of the medical expense deduction.

While this deduction may not offset the entire tax on the distribution, it can be significant enough to argue against converting all of your IRA to Roth.

7. You Don’t Have the Cash to Pay the Taxes

The traditional approach to paying for Roth conversion taxes is to use cash on hand from a savings or checking account, or to increase withholding from sources like Social Security or a pension to offset the additional taxes.

If these aren’t options—if you don’t have the cash or need your income from other sources—you may have to use funds from your IRA to pay the tax. If you’re younger than 59½, this isn’t advisable because you’ll face a 10% early withdrawal penalty.

Even if you’re over 59½, using money from your IRA to pay the taxes leaves less money invested that could otherwise grow tax-deferred. This may not be ideal depending on your time horizon and the breakeven point of the Roth conversion.

Your plan should strongly favor Roth conversions for it to make sense to pay the tax out of the IRA. While there are cases where this works (I have a client for whom we’re doing exactly this), if you don’t have the cash and the case for Roth conversion isn’t compelling, you might want to pause or avoid the conversion altogether.

Final Thoughts on Roth Conversion Decisions

Understanding when a Roth conversion makes sense requires careful analysis of your current situation, future expectations, and overall financial goals. While Roth conversions can be powerful tools for retirement planning, they aren’t right for everyone in every situation.

Remember that tax laws and personal circumstances change over time, so regularly reviewing your retirement and tax planning strategy is essential for long-term success.

If you’re approaching retirement and wondering if you should do a Roth Conversion, check out Episode 66 of The Planning for Retirement Podcast. Consider working with a financial advisor who specializes in retirement income planning. They can help you analyze your specific situation and develop a claiming strategy that aligns with your overall financial goals.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.




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