Should I Consolidate My University Retirement Accounts?
If you’ve worked at more than one university—or remained at the same university for many years—you may have accumulated several retirement plans at different stages of your career.
Universities typically offer a mix of mandatory retirement plans, voluntary plans, and 457(b) deferred compensation plans. If you’ve worked with a university-affiliated hospital system, you may also have additional plans through the medical foundation. In recent years, many institutions have changed retirement plan custodians and platforms, often resulting in “frozen” accounts that no longer receive contributions. It’s common for faculty members nearing retirement to have six or more separate retirement accounts.
Too Many Retirement Accounts
Managing multiple accounts can complicate your investment strategy and make it harder to keep your retirement plan on track. Monitoring asset allocation, rebalancing your portfolio, and reviewing performance become more challenging as the number of accounts increases.
So, what should you do with all these accounts?
The answer is not always straightforward. Consolidation can help to simplify your financial life, but university professionals face unique considerations that make the process more complex.
IRA Benefits
If handled properly, rolling over accounts into an IRA can offer advantages:
- Simplified recordkeeping and fewer accounts to manage.
- Greater investment flexibility, with access to a broader range of funds and investment options than what’s typically available in a 403(b).
- Qualified Charitable Distributions (QCDs): IRAs allow you to donate up to $100,000 per year directly to a charity tax-free. However, 401(k), 403(b), or 401(a) plans do not permit QCDs, and they can begin at age 70½, earlier than the required minimum distribution (RMD) age of 73. This can be a valuable strategy for charitably inclined individuals with large tax-deferred balances.
RMD Rules
Many university faculty continue working into their late 70s or beyond. Retirement plans through your current employer are exempt from RMDs as long as you’re still working there. In contrast, IRA accounts require RMDs beginning at age 73, regardless of your employment status.
If you plan to continue working, transferring funds into an IRA could inadvertently trigger RMDs while you’re still working. It may be beneficial to evaluate the timing carefully.
Investment Expenses: Institutional vs. Retail Costs
University retirement plans often feature low-cost institutional investment options and recordkeeping fees. When you move assets into a private IRA, you enter the retail investment space, where fees can vary widely.
Some advisors working with IRAs may recommend higher-cost investment products that generate commission trails (e.g., 12b-1 fees). If you choose to roll over into an IRA, look for a fee-only advisor who can offer access to low-cost, institutional-style investments within the IRA environment.
The Unique Case of TIAA Traditional
One distinct feature of university retirement plans is TIAA Traditional, an investment option common among faculty nearing retirement. On your TIAA statement, this typically appears as the “guaranteed” portion of your portfolio.
TIAA Traditional offers:
- Guaranteed principal protection.
- A minimum guaranteed interest rate.
However, it also comes with liquidity restrictions and specific rules around annuitization. These rules have evolved over time, so it’s essential to understand the current terms of your specific account before making any decisions about incorporating TIAA Traditional into your long-term retirement strategy.
Roll-In vs. Roll-Out: Another Consolidation Option
Instead of rolling assets out of your university plan, consider whether your current plan allows roll-ins—the ability to transfer outside assets into your existing university retirement account.
This lesser-known option may be especially valuable if you plan to keep working for several more years and your university plan offers solid, low-cost investment choices. Some independent advisors can manage assets within your university plan, allowing you to consolidate without leaving the institutional platform. Always check your specific plan rules to confirm availability.
Consolidated Reporting vs. Consolidated Accounts
In some situations, it makes sense to maintain multiple accounts. If so, make sure you have a system for consolidated reporting, which allows you to view all your retirement assets as a single portfolio.
Financial planning software can aggregate statements from various accounts and provide a comprehensive view of asset allocation and performance, helping you make informed investment decisions.
Creating a Smart Consolidation Plan
As you explore consolidation, prioritize what’s in your best interest—not what benefits an advisor. Some advisors may suggest IRA rollovers solely because they allow them to charge a fee.
Working with a knowledgeable advisor can be valuable but ensure that any plan you follow results in an overall improvement in your investment plan after including all expenses. Also consider how long you intend to work, your contribution schedule, and the special characteristics of certain assets, such as TIAA Traditional.
Choose an independent fiduciary advisor who understands university retirement plan rules and the differences between custodians. A trusted, experienced advisor can help you create a consolidation strategy aimed at maximizing your retirement benefits while keeping your goals and interests at the forefront.
Need Help?
If you’d like an independent review of your retirement account consolidation options, we’re here to help. Contact us today to connect with a university retirement specialist to explore your options.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.
Savant is independent and unaffiliated with TIAA.References to TIAA Traditional are for informational purposes only and should not be construed as a recommendation or endorsement.
James M. Haygood
Financial Advisor
CFP®, AWMA®