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Don’t Roll Over on Your Rollover

Rod Diaz, CRPS®, AIFA®


In the 1970s, the cigarette brand Virginia Slims used the advertising tagline, “You’ve come a long way, baby.” The slogan applies today to retirement planning.

Back in the ‘70s only a relatively small percentage of Americans were covered by a retirement plan, and those who were, were typically covered by a pension or “defined-benefit” plan, an employer-provided plan that promised a monthly check of a set amount throughout retirement, for the rest of their lives. Today, more than 70 percent of Americans are covered by some type of retirement plan, mostly “defined contribution” plans—401k, 403b, SIMPLE. Such a proliferation of retirement plans has resulted in an increasing number of accounts held at former employers as Americans move from one job to the next. If you have a retirement account or two that you never transferred or “rolled over” into a current employer’s plan or personal IRA, you are not alone.

Technically, when you request a rollover you are asking for a distribution from a previous retirement plan in the form of a check made payable to you. You, in turn, deposit that same amount into a personal IRA account. The IRS gives you 60 days to move the money. However, most people do not use this procedure, as it is somewhat impractical. A much more common practice is to have your former retirement plan custodian or trustee transfer the money to the custodian or trustee of your current retirement plan or IRA. It is called a “trustee-to-trustee” transfer, but is more commonly known as a rollover.

Consider your options.

The Financial Industry Regulatory Authority (FINRA), a non-governmental, self-regulatory body that oversees the securities industry, maintains a document on its website, Understanding Your Choices: The 401(k) Rollover, that outlines your four retirement plan options when you leave your employer:

  1. Do nothing: leave your money there (usually, this requires at least a $5,000 balance).
  2. Roll over to your new plan: transfer your retirement plan balance to your new employer’s plan (assuming they have one and it accepts rollovers).
  3. Roll over your retirement plan balance into a personal IRA.
  4. Cash out: that is, take your balance in cash (actually a check).

If you are tempted to leave your money where it is, reconsider. It might not be in your best interest. Although the account will remain in your name and you will continue to get quarterly statements, you won’t have control over the investments. Your former employer will, and could decide to change the investments in your account or the custodian that holds your account. You might not want a former employer to have this much control your hard-earned funds. As well, when you do decide to access that money, you might need to communicate with your former employer to get your check.

On the other hand, you might be tempted to cash out. You’ll take your money and control of the situation, and decide for yourself how to invest it. But consider the consequences before you pull the trigger. If you cash out, you will likely have to pay taxes on the entire amount. That “income” could also move you into a higher tax bracket. And if you are under age 59½, you might have to pay a penalty on the entire balance, although the federal government has temporarily removed the penalty on early 401(k) withdrawals for individuals under the age of 59½ due to the COVID-19 pandemic. Penalty or not, cashing out halts your progress toward your retirement savings goal. Bottom line: Be sure to talk to an investment or tax advisor, or better yet, both, before cashing out.

A better option is typically to roll your old account over, either to your new employer’s plan or a personal IRA. Not only will you take control of your money and investment choices, you will avoid the taxes and penalties related to cashing out. Clearly this is advisable for most individuals.

Avoid scams, consult with a professional.

Again, as with your other options, it is best when considering a rollover to consult with an investment or tax professional before you make your move. But buyer beware. Not all “professionals” are created equal. “Picking off” unsuspecting people and rolling over their hard-earned retirement funds unethically, in essence into some scam artist’s pockets, has become somewhat of a cottage industry. So much so that on January 20,2021, the Department of Labor (DOL) published an “exemption” to address the issue. As stated in the DOL release, “Under the exemption, investment professionals must plainly tell retirement investors that they are acting as fiduciaries and they must act in the retirement investors’ best interest.” In effect, the new standard disqualifies certain “advisors” from working with rollover clients.

What can you do to beware? For one, go to FINRA’s broker check to research the investment professional and company you are considering working with. The report includes any complaints against the advisor or their firm.

Before you decide on how or where to roll over your funds, ask a lot of questions, such as:

  • What are the fees and expenses that I would pay under the plan versus a personal IRA? Does the employer pay some of the administrative fees that I would have to pay with a personal IRA?
  • What services and features will I be getting with my employer plan as compared to engaging an advisor and opening my own IRA? Will I receive holistic advice like financial and estate planning, investment advice and distribution planning? Any other financial services?
  • Does the employer plan provide access to investment advice, planning tools, telephone help lines, educational materials and workshops, and other services that will not be available to me if I leave the plan?
  • What are the investments available under each option, IRA and employer plan?
  • How do the plans stack up against other options relative to such considerations as:
    • Penalty-free withdrawals between 55 and 59-1/2
    • Plan loans
    • Beneficial tax treatment of employer stock option plans
    • Availability and quality of advice accompanying the plan
    • Impact on my other accounts and assets

Asking good questions is key to making a good decision. You’re not likely to do more than two or three rollovers in your lifetime, so take the time to do it right. Don’t just roll over and take the path of least resistance.



The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.

Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.

The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.

HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.

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