Bank Investment Consultant

Jay,

Does she need the payments now?  If not, have you considered rolling it into an IRA?  Even if she does need the payments, and you roll it into an IRA, she can still elect a SOSEPP (72(t) election) and avoid dealing with TIAA-CREF.

Presumably your client has separated from service, so rolling her 403(b) plan into an IRA seems like a potential solution for her and avoiding this issue entirely.

Yes, the client does need income.

TIAA said that she cannot do a rollover.  They say it can only come out as payments.

Okay, first, I would get a hold of the plan documents and read them.

Second, I'm assuming that your client is the plan participant and not a nonspouse beneficiary, right?

Third, the IRC requires that a qualified plan (including a 403(b) plan) must provide participants receiving an "eligible rollover distribution" the option to have this distribution paid to them in the form of a direct rollover provided that it's payable directly to another retirement plan.  This sounds to me like it qualifies as an eligible rollover distribution and, therefore, a direct rollover to an IRA should be an option.  There are exceptions to what qualifies as an eligible rollover distribution, such as SOSEPPs, RMDs, etc., so unless there is something that is not indicated within your posts or something that I'm not understanding, I'm inclined to think the plan administrator is wrong.

As with 403b's in general and TIAA-CREF plans specifically, always refer to the plan document.  Most likely the reason why he/she can't do the rollover of the entire amount is the TIAA traditional piece of the account.  That investment option limits acess to the 10 withdrawals over nine year option.  This is what they refer to as a TPA (transfer Payout annuity).  You can take the payments and roll each of them over to an IRA, it will just take you nine years.  And you have to use their plan specific forms to do it.  TIAA-CREF is a mess to deal with when moving accounts from them.  Be prepared for conference calls with them and the client and lots of paperwork. 

Right!  The TIAA traditional cannot be taken as a lump sum.

So back to the original question, can a 56 year old start this payout without incurring an early distribution penalty?  She is the original owner (not a beneficiary) and she has separated from service from the former employer. 

Jay,

Generally, yes!  If the distributions are made to your client during or after the year that she turned 55 and while separated from service, the distributions should qualify for exclusion from the 10% penalty.  However, the sequence of events must have happened in that order:

1)  Turned 55 (during or before the year distributions began)
2)  Separated from service
3)  Distribution made

Jay   Have your client inform their employer or previous employer of the problem. A couple of years ago I had a similiar case & the employer HR department, in addition to learning more about the plan the employer was offering, convinced TIAA/CREF to transfer the funds. Also consider a complaint to FINRA. Your client was not properly informed of all the provisions in this 403b plan.