Can you do a partial rollover of a retirement plan?

Buggy flipPhoto courtesy of Demond Henderson

So I made the decision to rollover my retirement account from TIAA(-CREF) to an IRA.

I had done a transfer of a Roth IRA from Scottrade recently, and the process was seamless. I had also, a few years before, converted a 401(k) I had with Vanguard into a Traditional IRA.

The decision to rollover my 403(b) to Vanguard was easy. I love Vanguard, love their simplicity and low-fees, and I have all of my self-directed retirement accounts there. It just makes sense to add to the pile.

And while I expect that a full transfer will be easy, after some consideration I decided that I didn’t want to rollover all of my account. There’s one fund that I want to leave put.

So the question remains: can I do a “partial” rollover?

Staying traditional

First off, a little on the fund that makes this whole plan more complex.

Called TIAA Traditional, it’s not actually a mutual fund at all; it’s a “guaranteed” fund. What this means is that it provides a guaranteed return, completely divorced from the market.

The return isn’t much, only 3-4%, but considering I have little non-stock-based fund investments, it seemed that it would be prudent to have a least a little bit of a hedge. Since I already have it.

And there’s another reason to hold on to it for now: it’s hard to get rid of. Unlike other standard mutual fund investments, this one isn’t liquid. When I went to ask about a rollover I was told that I couldn’t just transfer money out of this fund, but could instead do one of two things: a 10% payout every year until the whole thing is gone, or convert it to an annuity.

And that’s a whole other deal. I honestly don’t know if the guaranteed return makes this a keeper, or the payout options makes this a get-out-immediately situation.

What is certain is that this fund is in a class all by itself, and I will want to deal with it separately.

You can do it (usually)

The important thing to realize about 401(k)s and 403(b)s is that while they are administered by companies like TIAA and Vanguard, the specifics of the contract are set between the administrator and your employer. So your abilities to do a transfer are very plan-dependent.

But unless there are specific rules put in place to prevent it, you can usually do a partial transfer.

And in this case, I talked with an TIAA advisor, and they told me that yes, indeed, I could do a partial transfer if I wanted.

Buy low, sell never

But it gets more complex. Some of these funds are TIAA-specific funds which don’t exist outside of the TIAA world. Once I rollover to Vanguard, I won’t be able to keep them.

This contrasts with my experience with Scottrade, where I was able to keep my investments dollar for dollar.

So I asked what I would need to do, and was told that I would need to sell all of my investments before doing a rollover.

Gulp.

My general rule about investing is effectively “buy low, sell never“. I’m on the fence about how much to rebalance, mainly because I know I haven’t really lost or gained anything until I sell. (This is why walking away from an “underwater” mortgage bugs me so much.)

But in order to do this partial transfer, I’m going to need to sell all of my investments.

If there’s any salve to this situation, it’s that I’ll be moving away from funds that have relatively high fees and relatively low returns. I know I can do at least as good, if not better, than what I have now. And the sooner I do the transfer, the sooner I’ll be making higher returns.

What those funds are, I’ll need to determine, but I first need to get the money moved.

Recap

There are reasons to do a partial rollover. You might want to have your money in other investments, but still keep a toehold with your current account, either because you want to maintain a connection with your current administrator, or because there’s an investment that you can get elsewhere.

But not every plan allows for a partial rollover. So if this seems like a good option for you, the first thing to do is contact the institution that holds the money and ask if they do, then contact the institution that you want to hold the money (if different) and ask if they can receive the money.

And, as always, the most important thing to remember is never get the money sent to you. The money needs to be sent straight from one company to another. If you get the money in your hand, there’s a good chance that it might be counted as a “withdrawal” which will incur taxes/penalties of upwards of 40%. No rollover is worth that.

I haven’t initiated my own rollover yet, but I’m about to. Will it be as seamless as it sounds, or will there be headaches involved? We shall see.

But enough about me. Have you ever done a partial rollover? Might you want to?

Mike Pumphrey

Mike Pumphrey

I'm the founder and author of Unlikely Radical, a site to help people succeed with money, achieve their goals, and live intentionally.

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Mike Pumphrey

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Posted on July 20, 2017