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I am trying to figure out what the difference between TIAA-CREF's "mutual funds" and their "variable annuity" accounts.
In particular, are there differences in:

1) Rules about withdrawal.

2) Taxation rates on withdrawal.

Both are in my 401K from work so they are both tax-deferred. Those are the only things I could of that might differentiate them. What am I missing?

I read a couple of other posts from other boards on variable annuities. The consensus seems to be "bad" unless maybe they are from Vanguard or TIAA-CREF. However, they seem to be comparing variable annuties against other general investing choices. I don't have the choice through work. There seem to be a lot of complaints about the generally high fees, but I have to invest either in TIAA-CREF's mutual funds or their variable annunities and in many cases the VA's fees appear lower.

I looked at the fees when trying to compare them. I was surprised to see, for example, the fees for the equity index variable annuity which tracks the Russel 3000 was .36% whereas the fees for the S&P500 index mutual fund was .44%. I'm a newbie but isn't it easier to track 500 stocks than 3000 (or at least no harder)?

Thanks [and let me know if I should post this elsewhere],

Dave
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Dave-
I went through the same thing a couple of years ago. I resolved most of my questions by scheduling a meeting with a TIAA-CREF representative who visited my university.

My take on the differences between the mutual funds and variable annuities at TC is:
1. Each type of account at TC will have access to either one or the other and you don't usually get to choose which. For example, my 403(b) and supplemental retirement accounts are variable annuities, but my son's Coverdell ESA is a mutual fund.
2. There are overlapping, but non-identical investment funds within each category. For example, annuities have a Global fund that includes both US and international, while the mutual funds have separate US and International funds. Also, the Real Estate account (which I love!) is only available as an annuity -- there is a REIT fund in the mutual fund side but it is different.
3. Costs are low on both sides.
4. Withdrawal rules depend on the type of account it is. You'll need to check what the rules are for a 401(k). Upon retirement if you want to convert your variable annuity into a guaranteed payment (a process that I believe they call annuitizing), then you can. I don't know if you have this option on the mutual funds.

I'm not sure about your taxation question -- I think that the annuity comes back to you as ordinary income. Now that you mention it, this is an important question! I think I will look into it some more.

As for the fees at TIAA-CREF, they are great. True, you can get lower at a Spartan fund from Fidelity but even the International fund at TC is around 0.5%! I think that the S&P tracking funds might have additional expenses associated with the trouble of tracking an index that updates its composition every year, but I am just guessing.

-Ken
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I was checking out the tax question that you raised and I came across this publication by TIAA-CREF:

http://www.tiaa-cref.org/pubs/html/reviewing_income_options/index.html

There are several options for the payout of your TIAA-CREF variable annuities once you retire. Converting it to a Lifetime Annuity is just one of them. It looks to me like all of the options get taxed as regular income, however.

-Ken
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