Indirect Rollover to an IRA question

[elessar78]

I pulled this section from another website on advice on how to rollover my 403b funds from an old employer (held at TIAA-CREF) to Vanguard. I don't want to do a direct rollover, can someone clarify the bolded passage below?

The Indirect Rollover to an IRA
If you do request your employer or investment company to issue a check directly to you from your retirement account, and you plan to roll it over to another plan or IRA, it's considered an "indirect rollover." Your investment company will be only too happy to send you a check for the full vested balance of your account. In this situation, you have 60 days to roll over the assets if you want to preserve the tax status of the account. When you get the check, simply deposit it in the rollover IRA within 60 days. To meet the 60-day rule, start counting on the day after you receive the check and include the day you deposit the money into your IRA. For example, if you get the check on Sept. 1, you must get the money into your IRA on or before Oct. 31. There's no extension for weekends or holidays. And, as mentioned earlier, your employer or investment company is required by law to withhold 20% of the amount paid to you as prepayment of federal income tax (you may recoup the 20% withholding when you file a credit on your income taxes for that year). If you want to roll over the entire amount of your distribution, you can make up the difference using money from your other savings.

So TIAA-CREF, when I ask for my funds in cash will hold 20% of that? So If I'm withdrawing $10,000, they will hold $2,000? And I will have to file for that in my 2012 return to get that $2000 back? Or do I just get the whole $10,000 now to deposit into my Vanguard IRA?

[Petunia 100]

I pulled this section from another website on advice on how to rollover my 403b funds from an old employer (held at TIAA-CREF) to Vanguard. I don't want to do a direct rollover, can someone clarify the bolded passage below?

The Indirect Rollover to an IRA
If you do request your employer or investment company to issue a check directly to you from your retirement account, and you plan to roll it over to another plan or IRA, it's considered an "indirect rollover." Your investment company will be only too happy to send you a check for the full vested balance of your account. In this situation, you have 60 days to roll over the assets if you want to preserve the tax status of the account. When you get the check, simply deposit it in the rollover IRA within 60 days. To meet the 60-day rule, start counting on the day after you receive the check and include the day you deposit the money into your IRA. For example, if you get the check on Sept. 1, you must get the money into your IRA on or before Oct. 31. There's no extension for weekends or holidays. And, as mentioned earlier, your employer or investment company is required by law to withhold 20% of the amount paid to you as prepayment of federal income tax (you may recoup the 20% withholding when you file a credit on your income taxes for that year). If you want to roll over the entire amount of your distribution, you can make up the difference using money from your other savings.

So TIAA-CREF, when I ask for my funds in cash will hold 20% of that? So If I'm withdrawing $10,000, they will hold $2,000? And I will have to file for that in my 2012 return to get that $2000 back? Or do I just get the whole $10,000 now to deposit into my Vanguard IRA?

May I ask why it is that you don't wish to do a direct roll over?

To answer your question, if you ask TIAA-Cref to distribute to you, yes, they will withhold 20% and send 80% to you. However, you must deposit 100% into an IRA within 60 days, or the 20% is treated as an early distribution, subject to tax and (if applicable) penalty. When you file your income tax return, you will receive credit for the withholding the same way that you do for withholding from your paycheck.

ETA: That's 100% of the distribution, not 100% of the amount sent to you. Do you have the other 20% on hand?

[elessar78]

It's more out of curiosity at this point. I inquired about it when I left my previous job several years ago and all the guy did was hard sell me on staying with TIAA. I'll still directly roll it over, but I'm just trying to understand the process better.

I was researching it and saw the indirect rollover option.

[jpg7n16]

So TIAA-CREF, when I ask for my funds in cash will hold 20% of that? So If I'm withdrawing $10,000, they will hold $2,000? And I will have to file for that in my 2012 return to get that $2000 back? Or do I just get the whole $10,000 now to deposit into my Vanguard IRA?

On an indirect rollover, they are required to w/hld 20% for federal taxes.

In order to avoid any tax plus early withdrawal penalty on the amount withheld, you need to come up with the extra funds from some other location.


Based on the example you gave, on an indirect rollover, you would withdraw $10k, have $2k sent to the IRS and get a check for $8k. Current taxable distribution amount: $10k.

If you subsequently roll the $8k into a rollover IRA by means of an indirect rollover, you reduce your taxable distribution by $8k ($10k - $8k = $2k). If you do not replace the remaining $2k within a 60 day window, the $2k is a taxable distribution subject to potential 10% penalty. For a 25% bracket individual, that would mean you would owe $700 in taxes [$2000 * (.25 + .10)= 2000*.35= 700].

Since $2k was withheld, you would get back $1300 on your refund.


On a direct rollover, all $10k goes straight to the plan/account so you don't have to worry about it. I think the only time you should EVER do an indirect rollover is in a case where you thought you needed the funds, but find out you didn't. In other words, to fix a mistake. But it is an option.