New Rules Protect 401(k) Account Holders Seeking IRA Rollovers
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Here's your money briefing for Friday, February 19th. I'm J.R. Whalen for The Wall Street Journal. When you leave a job where you've got a 401k retirement account, you have a few choices. You could leave it in your old company's 401k plan and withdraw money when you retire, or you can transfer it or roll it over to an IRA. It can get confusing, and many people seek financial help with the decision. But strict rules put in place by the Trump administration govern how financial professionals can advise their clients.
I think the government has a big concern about ensuring that, you know, that the money in these accounts is preserved in the best interest of the account owner.
Those rules just came into effect this week. Coming up, our retirement reporter Ann Turgason joins us to discuss the pros and cons of rolling over your 401k to an IRA and what anyone working with a financial advisor should know about the new rules. That's after the break.
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If you ever find yourself considering rolling over your 401k when you leave a job, you might enlist the help of a financial advisor. Federal rules set strict guidelines to ensure that the advice you receive best serves you, the account holder. Our retirement reporter, Ann Tergesen, has been following recent changes to those rules, and she joins me now.
What choices do you have for your 401(k) when you leave a job?
Ann, thanks for being here. You're welcome. So let's start with the basics. What is a rollover and how does it work?
A rollover is when you have a 401k account and you've left your employer. So you have the option in most cases to leave the 401k account where it is with your old employer, or you can do what's called a rollover to an IRA, which means that you basically transfer the money from the 401k account to the IRA and you don't have to pay taxes. It's not a taxable event. You're just transferring the money over and it sits there and it's still tax deferred.
Okay. So aside from the tax savings, why would somebody want to do that?
If you have some reason to believe that your 401k plan doesn't offer you the best options, maybe it offers very few investment options and you feel strongly that you want to invest in something different. Or maybe it has higher fees than you can get on your own. And those would be two good reasons to roll money over to an IRA.
And people sometimes go to a financial advisor for help with making that decision. Now, among the things that the rules in question here address are conflicts of interest that that kind of advisor might have. What kinds of conflicts could there potentially be?
Right. So often what you have is there's a big incentive within the financial services industry to get people to roll over from 401ks to IRAs. I mean, one reason is that sometimes sort of on average, what you find is that the fees within 401k accounts are lower than 401k. than what people pay when they're in IRAs and other accounts besides 401ks. So it doesn't mean you can't, if you know what you're doing, you can't find investments that are cheaper in an IRA.
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