How to Borrow Against TIAA-CREF Retirement Funds

TIAA, or the Teachers Insurance and Annuity Association, is a financial services organization that manages retirement accounts for people working in teaching, research, medicine and government jobs. Prior to 2016, it was named TIAA-CREF, with CREF standing for College Retirement Equities Fund. The nonprofit company allows retirement account holders to take out a TIAA loan, but there are rules and regulations about how much can be borrowed and for how long.

A 403(b) retirement savings plan is like a 401(k), but is held by public school teachers and other employees of nonprofit organizations. The purpose of these plans is to put tax-deferred funds aside for retirement, so ideally you would contribute to it and let it grow in value until you’re ready to retire. You are allowed to make an early withdrawal, but you may be subject to a 10 percent withdrawal penalty. Also, the money will lose its tax deferred status and you may need to pay up to 20 percent in federal withholding taxes.

If you have a TIAA-CREF 403(b) account, you can borrow 50% of your balance or $50,000, whichever is less. The money borrowed generally must be paid back within five years. Both the loan balance and interest must be repaid on schedule or the loan will be treated as an early withdrawal and a 10 percent early withdrawal penalty will be due if you are under age 59 1/2. You’ll also need to pay taxes on the balance. If you leave your job with an outstanding loan balance, it must be repaid within a 60- to 90-day grace period or the loan will be treated as an early withdrawal.

The best way to have money for retirement is to fund a retirement account and forget about it, so financial experts advise against borrowing from a retirement account for most expenses. A child’s wedding or college education should not be funded from a retirement account if it puts a parent’s retirement in jeopardy. When you take a loan from your retirement account, you lose out on any gains the funds would amass if they were invested. For example, TIAA reports that a $10,000 loan paid back over 5 years represents more than $3,500 in lost investment earnings, assuming the loan has a 6 percent interest rate and the return on investment averages 8 percent over the next 25 years.

According to TIAA, most people take out a loan against their retirement savings to pay off debt or for an emergency expense. Besides missing out on investment returns on the value of the loan, 403(b) and 401(k) borrowers often contribute less or stop contributing to their retirement savings while they are paying off their loans. Using emergency savings is usually preferable to borrowing from a retirement account.

Purchasing a primary residence may be a good reason to borrow from a 403(b). It may also make sense to borrow the funds to make major home repairs, like replacing the roof. One of the biggest advantages of a TIAA loan in this situation is that the interest rate will be lower than many other types of loans, typically only 1 or 2 percent above the prime rate.

Another advantage of borrowing a TIAA account to buy a home is that you don’t need to have a perfect credit rating. Credit history isn’t considered for TIAA loans since you’re borrowing your own money. Also, you may be given more than five years to pay back a 403(b) loan used to purchase a home.