In this week’s Mullooly Asset Management podcast, Tom and Brendan discuss some recent scrutiny of 401k to IRA rollovers. When somebody leaves a company, via retirement or for other reasons, they are left with a decision: what do I do with my 401k plan? A recent Marketwatch article (that you can find here) warned investors of “misleading and inaccurate advice” being given by some financial advisers to individuals who are leaving their employer-sponsored retirement program.
FINRA and the SEC have been looking into cases where it seems advisers haven’t done their due diligence before advising investors to proceed with 401k to IRA rollovers. A study done by the GAO (Government Accountability Office) found that investors, “often receive guidance and marketing favoring IRAs”. They went on to state that, “Service providers’ call-center representatives encouraged rolling 401k plan savings into an IRA even with only minimal knowledge of a caller’s financial situation”.
The big issue here is that investors have more options (as we’ve previously discussed!) than just 401k to IRA rollovers. In fact, they have three other options. While the IRA rollover is going to be the best option for most, that doesn’t mean it is going to be the best option for ALL. For example, an investor could choose to leave his/her money at their former employer’s plan after leaving a job (if that is permitted). They could also roll over their assets into a new employer’s plan (again if the new employer has one and permits rollovers). They could even decide to cash out of the account. Cashing out will likely incur an early withdrawal penalty (10%) if the individual is under age 59 1/2, but the point is they have that choice.
The GAO, FINRA, and the SEC are unhappy that investors aren’t being informed and educated about their options before being given investment advice. Research regarding the investor’s current options and financial situation are a must before offering any type of investment advice. Investors have a choice to work with an advisor who offers this type of research and devotion to their best interests.
If the investment advisor you’re working with is a fiduciary (like Tom at Mullooly Asset Management), they will put your best interests ahead of their firm’s and their own. As a fiduciary advisor it is their legal obligation to do so. In this instance, a fiduciary would help you decide whether a 401k to IRA rollover was really your best option. They would explore your financial situation and history, and go over all of the available options with you before offering their opinion.
Tune into this week’s podcast to hear Tom and Brendan discuss more about 401k to IRA rollovers.