TIAA Lifetime Income and RMDs: The First-Year Mistake to Avoid
Meta Description: Starting TIAA lifetime income in your first RMD year? Learn how annuity payments, remaining account balances, MDO payments, and rollovers may interact.
TIAA Lifetime Income and RMDs: The First-Year Mistake to Avoid
Starting Required Minimum Distributions is confusing enough.
Starting TIAA lifetime income during the same year can make the process even more complicated.
A question I frequently receive is:
“If my TIAA lifetime-income payments are larger than my Required Minimum Distribution, does that mean my entire RMD has been satisfied?”
You should not automatically assume that it does.
Once part of a TIAA balance is converted to lifetime income, the annuitized portion and the assets that remain in accumulation accounts may be handled differently for RMD purposes. Your lifetime-income payments may address the distribution requirements associated with the annuity, while TIAA may still calculate a separate RMD for the remaining eligible account balances.
That distinction is particularly important during the first year in which you are subject to RMDs.
A Simplified Example
Suppose a TIAA participant has:
$1 million in total retirement assets
$400,000 in TIAA Traditional that will be used for lifetime income
$600,000 remaining in other TIAA investments
Approximately $40,000 per year of lifetime income
A separately calculated RMD of approximately $30,000 from the remaining assets
The participant may initially think:
“My lifetime income is $40,000 and my RMD is only $30,000, so the lifetime-income payments should satisfy everything.”
That conclusion may be incorrect.
Once the $400,000 is annuitized, the lifetime-income stream is generally administered under the annuity payout rules. The assets that were not annuitized can remain subject to a separate RMD calculation.
In this simplified example, the participant could receive:
$40,000 of lifetime income, plus
$30,000 distributed to satisfy the RMD attributable to the remaining accounts
That would create total distributions of approximately $70,000 for the year.
The exact treatment depends on the account types, contracts, annuity election, plan provisions, and TIAA’s administration. Participants should obtain a written calculation from TIAA and confirm the tax treatment with their CPA or tax professional.
Why the Confusion Happens
The confusion often comes from treating every payment from a retirement account as interchangeable.
They are not always interchangeable.
There may be several different components involved:
Payments from an annuitized TIAA Traditional balance
RMDs calculated on non-annuitized employer-plan assets
RMDs from IRAs
Distributions from previous employers’ plans
Payments from Roth or after-tax sources
Transfers or rollovers to another custodian
The federal RMD rules apply to traditional IRAs and employer-sponsored plans such as 403(b), 401(k), and 457(b) plans. The required amount is generally based on the prior December 31 account balance and the applicable IRS life-expectancy factor.
However, the calculation and administration become more nuanced after part of a retirement balance has been converted into an annuity income stream.
The safest approach is to avoid assuming that the amount shown on a lifetime-income illustration will automatically offset every other RMD obligation.
The First-Year RMD Deadline
For most people reaching their applicable RMD age, the first distribution can generally be delayed until April 1 of the following year.
However, delaying the first RMD can create two taxable distributions in the same calendar year:
The delayed first-year RMD, due by April 1
The second-year RMD, due by December 31
The IRS confirms that the April 1 extension applies only to the first RMD. All later annual RMDs are generally due by December 31.
Taking two RMDs in one year could increase:
Taxable income
Medicare income-related surcharges
The portion of Social Security subject to tax
Exposure to a higher marginal tax bracket
For that reason, many retirees choose to complete their first RMD by December 31 of the year they reach RMD age rather than waiting until the following April.
Using TIAA’s Minimum Distribution Option
TIAA’s Minimum Distribution Option, commonly called the MDO, can help automate distributions intended to satisfy an RMD.
TIAA states that it can calculate and distribute required amounts from eligible tax-deferred accounts.
An MDO may be especially helpful when someone:
Does not want the entire RMD in one lump sum
Wants payments spread over the remaining months of the year
Is coordinating the RMD with a lifetime-income start date
Plans to roll the remaining balance to another custodian later
Wants to avoid accidentally rolling over an amount that was required to be distributed
For example, suppose it is August and the participant still needs to distribute $30,000 before year-end.
Rather than receiving the full $30,000 immediately, the participant might establish an MDO that pays approximately:
$30,000 ÷ 5 months = $6,000 per month
Payments could then be made during August, September, October, November, and December.
The precise schedule and availability would need to be confirmed with TIAA.
Why You May Want to Complete the RMD Before a Rollover
RMD amounts are not eligible to be rolled over.
The IRS specifically states that amounts required to be distributed for a year cannot receive rollover treatment.
Therefore, when a participant initiates a rollover from an employer retirement plan or IRA after reaching RMD age, the amount required to satisfy the current-year RMD generally must be distributed before the remaining eligible balance can be rolled over.
Suppose the participant wants to transfer the remaining non-annuitized TIAA assets to a rollover IRA at Charles Schwab, Fidelity, Vanguard, or another custodian.
A possible sequence could be:
Start the desired TIAA lifetime-income election.
Confirm the separate RMD attributable to the remaining accounts.
Use an MDO or another withdrawal method to complete that RMD.
Verify that the full current-year RMD has been distributed.
Stop future MDO payments if appropriate.
Directly roll the remaining eligible assets to the new IRA.
This sequence can prevent part of the RMD from being mistakenly included in the rollover request.
Why December 31 Matters
IRA RMDs are generally calculated using the account value as of December 31 of the preceding year.
Suppose the participant wants the receiving IRA custodian to administer future RMDs beginning in 2027.
Having the rollover assets posted to that IRA by December 31, 2026 would give the receiving custodian a prior-year-end balance on which to calculate the 2027 IRA RMD.
If the transfer is not completed until January 2027, the assets would not have been in the receiving IRA on December 31, 2026. That can complicate who calculates the next RMD and how the participant coordinates distributions between the prior employer plan and the new IRA.
This does not necessarily mean that transferring in January creates an RMD failure. It means the participant may need to coordinate the calculation manually with both custodians rather than assuming the receiving IRA provider has all the necessary year-end information.
A Potential Year-End Strategy
Using the simplified example, a potential implementation plan might look like this:
Step 1: Confirm the lifetime-income election
Determine:
Which TIAA contracts will fund the income
How much will be annuitized
The income start date
The selected single-life or joint-life option
Any survivor benefit
Any guaranteed period
Step 2: Obtain an updated RMD calculation
Ask TIAA to show separately:
How the annuitized portion is being treated
The RMD associated with the remaining non-annuitized assets
The accounts from which that RMD will be distributed
The total amount still due before December 31
Do not rely solely on an earlier estimate generated before the lifetime-income election was processed.
Step 3: Establish an MDO for the remaining year
If the participant prefers monthly distributions, the outstanding RMD could potentially be divided over the months remaining in the year.
Step 4: Complete the final MDO payment
After the December payment, verify that TIAA records show the full required amount as completed.
Step 5: Stop or revise the MDO
If the remaining assets will be transferred, cancel or modify the MDO so unwanted payments are not issued the following year.
Step 6: Complete the rollover before year-end when feasible
Transfer the remaining eligible assets directly to the receiving rollover IRA.
A direct rollover generally avoids the mandatory withholding that may apply when an eligible employer-plan distribution is paid directly to the participant.
Step 7: Confirm the receiving account value
Verify that the transfer has settled and appears on the receiving IRA’s books by December 31 when year-end timing is part of the strategy.
Do Lifetime-Income Payments Count Toward an RMD?
The most accurate answer is:
Lifetime annuity payments can satisfy the distribution requirements applicable to the annuitized interest, but they may not automatically satisfy an RMD separately calculated on other non-annuitized accounts.
That is different from simply saying the lifetime-income payment does—or does not—count toward an RMD.
The participant needs to identify:
Which assets were annuitized
Which assets remain in accumulation
How TIAA calculated the RMD after annuitization
Whether multiple 403(b) contracts are being aggregated
Whether IRA RMDs are also involved
Whether any payments are coming from separate employer plans
Ask TIAA for the figures in writing whenever possible.
403(b) Aggregation Can Add Another Layer
Under federal rules, 403(b) accounts have certain aggregation flexibility that differs from employer plans such as 401(k)s.
A participant with multiple 403(b) accounts may generally calculate the RMD for each account and take the combined amount from one or more of the 403(b) accounts.
However, plan administration and contract restrictions can affect how the distribution is implemented.
An IRA RMD generally cannot be satisfied using a distribution from a 403(b), and a 403(b) RMD generally cannot be satisfied using an IRA distribution. They belong to different aggregation groups.
That is another reason participants should not view every retirement payment as interchangeable.
Common Mistakes to Avoid
Assuming lifetime income satisfies every RMD
The annuity payments may address the annuitized portion while another RMD remains due from non-annuitized assets.
Using a pre-annuitization RMD estimate
The final calculation should reflect how the accounts are structured after the lifetime-income election is completed.
Rolling over the account before satisfying the RMD
A current-year RMD is not eligible for rollover. It generally needs to be distributed first.
Waiting until the last few days of December
Year-end transfers can be delayed by paperwork, signatures, plan approval, mailing, processing backlogs, or rejected instructions.
Failing to stop the MDO
An automated payment established for the current year may continue unless it is properly canceled or revised.
Assuming the receiving custodian will calculate everything
A new custodian may not have the prior December 31 value if assets arrive after year-end.
Ignoring taxes and withholding
Lifetime-income payments and RMDs are generally taxable to the extent they consist of pretax money. Withholding should be coordinated with the participant’s broader tax plan.
Questions to Ask TIAA
Before starting lifetime income during your first RMD year, consider asking TIAA:
What is my total RMD before the lifetime-income election?
How will that calculation change after part of the account is annuitized?
How much RMD remains due from my non-annuitized balances?
Which contracts will fund the RMD?
Can the remaining amount be paid monthly through an MDO?
When will the final payment be completed?
How do I stop the MDO after the current year?
Must the current-year RMD be distributed before my rollover?
How long will the rollover process take?
Can you provide the calculation and instructions in writing?
Frequently Asked Questions
If my TIAA lifetime income exceeds my RMD, am I finished for the year?
Not necessarily. The lifetime-income payments may satisfy the requirements associated with the annuitized portion, while a separate RMD may remain due from other accounts.
Can I use an MDO while receiving lifetime income?
Potentially, yes. An MDO may be used to distribute the RMD associated with eligible non-annuitized balances. Confirm the arrangement with TIAA.
Can my RMD be rolled into an IRA?
No. A required distribution is not eligible for rollover. The RMD generally needs to be distributed before the remaining eligible balance is transferred.
Do I have to take my first RMD by December 31?
You can generally delay your first RMD until April 1 of the following year. However, doing so means the second RMD will also be due by December 31 of that same following year.
Why complete the rollover before December 31?
Doing so can place the assets in the receiving IRA for the year-end valuation used in the following year’s IRA RMD calculation.
Can Schwab or another custodian automatically calculate the next RMD?
Typically, the custodian can calculate an IRA RMD when it held the account on the prior December 31. If the assets arrive after year-end, additional coordination may be required.
Final Thoughts
Starting TIAA lifetime income during your first RMD year requires more coordination than simply comparing two dollar amounts.
Do not assume:
“My lifetime-income payment is larger than my RMD, so I have satisfied everything.”
Instead, determine how TIAA is treating:
The annuitized balance
The remaining accumulation accounts
The lifetime-income payments
The separate RMD calculation
The MDO
The rollover
The December 31 account values
A well-coordinated strategy may allow you to spread the RMD over the remaining months of the year, complete the required distribution before the rollover, and position the receiving IRA to handle future RMD calculations.
But the sequence matters.
Before submitting irreversible lifetime-income paperwork or initiating a year-end rollover, obtain updated figures from TIAA and coordinate the strategy with your tax professional.
About Greg Shepard
I’m Greg Shepard, founder and creator of TIAA Simplified. I specialize in helping higher education professionals and retirees across the country understand their TIAA contracts, coordinate lifetime income with Required Minimum Distributions, and make informed retirement decisions.
If you are approaching your first RMD year and also considering TIAA lifetime income, contact S&A Financial Services to learn more about the planning options available.
This article is provided for general educational purposes and is not individualized investment, legal, or tax advice. RMD calculations, annuity treatment, aggregation rules, contract provisions, and rollover procedures can vary. Confirm the current figures and procedures with TIAA and consult your tax professional before acting.