How Is My Minimum Distribution Payment Calculated?

Each year we will automatically calculate your minimum payment by dividing the portion of your accumulation that's subject to the rules by the applicable life expectancy.

Life Expectancy and How It's Determined

Life expectancy plays an important role in how we determine your minimum distribution payment. It is a projection of how long a person will live, on average, at a given age based on the experience of a large group of people. The life expectancy we are required to use to determine your payments is based on Internal Revenue Service mortality tables.

If you choose to include another person's life expectancy in the calculation of your payments, that person is called a "Calculation Beneficiary." Payments will be based on the combined life expectancy of you and that person. If you don't elect a calculation beneficiary, payments are based on your life expectancy alone.

Grandfathered Accumulations

If your TIAA-CREF annuities are part of a retirement plan under section 403(b) of the Internal Revenue Code, only contributions and earnings credited after December 31, 1986, are subject to minimum distribution requirements. Any contributions or earnings credited to your annuities before January 1, 1987, are excluded from the accumulation subject to federal rules. Your pre-1987 accumulation is called your "grandfathered amount." Generally, you don't have to begin receiving payments from the grandfathered amount until the year you reach age 75. Once you reach age 75, your "grandfathered" accumulation will automatically be included in your minimum distribution calculation, thereby increasing your annual payment.

If you roll over your 403(b) accumulation to any type of IRA, there will no longer be a grandfathered amount. This would cause you to receive accelerated minimum distribution payments from the IRA.

If you are participating in a 403(b) plan, the initial payment under the MDO will be based on the accumulation that has accrued in the contract between December 31, 1986, and December 31 prior to the distribution year (the year you turn 70 1/2 or retire). This accumulation also known as the calculation accu-mulation, is then divided by a life expectance factor for you and your calculation beneficiary (if applicable) as stated in the IRS tables. For the definition of a calculation beneficiary please refer to the section on choosing a beneficiary.

Here's a scenario and sample calculation:

A participant turns 70 1/2 in 1999, has a 403(b) annuity, and according to IRS regulations must begin receiving a distribution no later than April 1, 2000.

Step 1: Determine The Calculation Accumulation
  December 31, 1998 accumulation
 -December 31, 1986 accumulation
 =Calculation Accumulation

Step 2: Calculate the Minimum Distribution Payment
  Calculation Accumulation
 +The Life Expectancy Factor
 =The Minimum Distribution Payment

The entire amount accumulated under 401(a), 403(a), 401(k) plans and IRAs is subject to federal minimum distribution requirements. Amounts accumulated under these types of plans are not eligible for grandfathered status. If you have one of these plans or an IRA, your calculation accumulation would be your total accumulation as of December 31 prior to the distribution year.

For example, if a participant turns 70 1/2 in 1999 and has a 401(a) annuity, according to IRS regulations he or she must begin receiving a distribution based on the December 31, 1998 accumulation, no later than April 1, 2000.

If you are not sure which type of retirement plan applies to your TIAA-CREF annuities, or if you have questions, call our Telephone Counseling Center Monday through Friday from 8:00 a.m. to 11:00 p.m. ET, and Saturday and Sunday from 9:00 a.m. to 6:00 p.m. ET, at 1 800 842-2776.

NOTE: Depending on when you submit your forms to begin the Minimum Distribution Option, you may receive two taxable distributions within the calendar year of your initial payment. In this case, the first calculated minimum distribution payment will be subtracted before calculating the second year's minimum distribution payment.

For example: Date required to begin: no later than April 1, 1999
  Forms submitted: March 1, 1999
  Two distributions are required in 1999.

Payment 1 must be taken before April 1, 1999.  
December 31, 1997 accumulation $100,000
Less December 31, 1986 accumulation  - $ 25,000

Equals the Calculation Accumulation   $ 75,000
Divided by life expectancy (Using Recalculation Method  15.3

Equals the Minimum Distribution Payment   $ 4,902
  (Paid in March 1999)
Payment 2 must be taken before December 31, 1999.   
December 31, 1998 accumulation  $110,000
Less December 31, 1986 accumulation  - $ 25,000
Less Payment 1 made in March 1999  - $ 4,902

Equals the Calculation Accumulation  $ 80,098
Divided by life expectancy Using Recalculation Method  14.6

Equals the Minimum Distribution Payment  $ 5,486
   (Paid in December 1999)

Next: Why Is Choosing An Appropriate Beneficiary Important?
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