Beware of Unsolicited Inquiries Pushing Retirement Plan Rollovers
When a financial salesperson asks, “Have you thought about what to do with your ‘old’ 401k?”, learn as much as you can and take your time before acting. I was recently approached by a salesperson who asked that very question, and it struck a nerve. He insinuated that as a former employee I wouldn’t be treated well if I remained invested in the 401(k) I have through my ex-employer. If you hear a line like that, run away!
If you are a recently displaced worker and have a retirement plan that allows you to remain as a participant, there is no reason to rush any decision about leaving. Think long and hard about what to do and what not to do. Seek help from a fee-only, advice-only financial planner if you would like assistance. While there may be reasons to consider an IRA rollover, there is a good chance that staying with your plan or rolling your account into a new employer’s plan may be better. These decisions are complex and require well-rounded, unbiased analysis to come up with a truly beneficial solution.
Key considerations will include, but not be limited to, expenses of funds in your plan lineup, the range of its investment alternatives, creditor protection that applies to ERISA accounts nationally versus protection that your state (or any state you relocate to) may offer, plan features of your current plan versus those of a new employer if you have one, and your intentions regarding future Roth conversions of pre-tax money.
In order to minimize future regret, you may want to create behavioral or analytical rules around the decision. For example, write down a minimum time period that should pass before acting. Combining a time-based rule with an analytical rule creates intellectual space to give yourself the gift of becoming more educated. The analytical rule could be something like consulting with a minimum number of credible sources before acting. These sources could include written materials, audio/video materials, or subject matter experts. The fewer conflicts each source has the more confidence you can have in their content. Try doing at least some of your own homework before speaking with anyone so that you have at least a foundational level of knowledge.
One thing you can be confident of from the outset is that financial salespeople whose compensation is tied to activities like convincing people to rollover their retirement plan account are unlikely to be credible sources of information. While they may have a lot of relevant knowledge, their conflict of interest is substantial. They should speak openly and honestly about potential conflicts, as well as how they are managed, before you even consider what they have to say. Most importantly, any expert you seek advice from should present both pros and cons of their recommended course of action.
The information presented in this newsletter is the opinion of the author and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through IndiePlan™ LLC, an investment adviser registered with the state of New York.