Several companies have announced layoffs over the last few weeks. I thought short refresher on 401(k) rollovers would be helpful.
Most individual change careers. They leave more than one 401(k) account behind. Add in a job switch. And a spouse. Soon you have a household full of old 401(k) accounts that you no longer make contributions to.
The Department of Labor Department defines a rollover in many ways. First, as taking a distribution from a 401(k) plan and transferring it to another 401(k) plan. Second, as taking a distribution from a 401(k) plan and transferring it to an IRA.
Next, as transferring money from an IRA to a 401(k) plan. Or transferring money from an IRA to another IRA. Last, transferring money from one type of tax-qualified or ERISA-governed account to another.
Last year, the Department of Labor introduced new rules. Investment advisors have new restrictions on individual investor’s 401(k) account. The new rules require investment advisors to provide in specific reason in writing. Why a 401(k) rollover is in the participants’ best interests. Or not.
Investment advisors must make charge reasonable fees. And avoid ambiguous or misleading statements when giving investment advice. This means they should be held to the fiduciary standard of care.
Investment advisors need compliance approved 401(k) rollover worksheets. To share with individual investors. These documents create an analysis that includes all fees and expenses. Associated with rollover options.
These worksheets outline the various levels of services and investments available. In a new company 401(k) plan. Or in a self-directed IRA rollover account.
An investment advisor needs to review all options available to an individual investor. And to share that analysis with the individual investor.
It only makes sense. Investment advisors must prove the specific reasons. In writing. Why a 401(k) should be moved to any other retirement account. Based on your financial plan.
Investment advisors are required to check all 401(k) rollover options available to you. And disclose all fees and expenses. Along with all available investment options.
No two 401(k) plans are the same. Some old 401(k) should be left alone. Some should be moved to the new 401(k). Some should be “rolled over” to a self-directed IRA.
You will never make the best decision until you have a complete analysis of the costs of all the options. And how good the existing or new investment options will be.
If you are dealing with a 401(k) rollover now and have questions, comment below. I do not have all the answers. But I know where to find them for you.
Ric Lager
Lager & Company, Inc.
