Changing Jobs? Be Aware of These Rollover Pitfalls!

Not all IRA products are in your best interest.

When you leave an employer, whether it's to take another job or to retire, what should you do with the money in your retirement account at your old job?

The right answer for you depends on your circumstances. For some, leaving the funds in your current account may make the most sense, while others may want to move their money into their new employer’s retirement plan.

You may also consider rolling your funds into an IRA, a simple process that may give you a wider range of investment options.

Or you may want the funds sent to you in the form of a check — though you will be responsible for paying taxes and a 10 percent penalty if you withdraw the funds before turning age 59 ½.

We recommend you talk with an Edelman Financial Planner for independent advice on which option is right for you.

While you are considering your options, be cautious if an aggressive marketer approaches you with IRA products — even if the marketer is one of the biggest and best-known service providers.

Many providers offer “misleading” and “biased” information about their products and steer participants into products that may not always be in their best interest, a GAO study found.

For example, seven of the 30 largest 401(k) service providers told a government investigator who contacted their call centers that their IRAs were "free," but didn't reveal that investment, transaction and other fees apply. Five of the 10 IRA websites that GAO examined made similar claims.

GAO also found that:

  • Participants think they have received investment advice from their service providers that is solely in the participants’ best interest even though they may not actually be receiving such advice.
  • Service providers use their websites and call centers, including making outbound calls to plan participants, as a means of marketing their firms’ retail IRA products and steering participants into them.
  • In addition to marketing their products, service providers may offer their call center representatives financial or other incentives for asset retention when participants leave their assets in the plan or roll them over into an IRA at the firm.

GAO, the investigative arm of Congress, urged that service providers be required to clearly disclose their financial interests in participants' decisions.

So instead of simply talking to the service provider of your former employer’s 401(k) account about rolling it into an IRA, talk with an Edelman Financial Planner. You will receive objective, independent advice, and any investments we recommend will be chosen because they fit your needs — not because they generate us a commission.

Note: When considering to roll your old retirement plan at work into an IRA, consider these factors:

  • The available investment options for diversification.
  • Any costs and account-related fees and expenses.
  • The account’s service-level availability.
  • Whether the account offers penalty-free withdrawals between ages 55 and 59 ½.
  • Whether loans are permitted within the account.
  • Whether there is legal protection from creditors under federal law.
  • The amount of the required minimum distribution (RMD) once you reach age 70 ½.
  • Any factors relating to employer stock.
  • Any state tax considerations.

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