Financial Advisor Tim Hayes
I am an Investment Adviser Representative at Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser (RIA) based in Fairfield, IA. I am also registered with Cambridge Investment Research, Inc., an independent broker-dealer with over 3,000 registered representatives nationwide.
Most clients pay fee-only or an hourly rate. The size and complexity of the client’s wealth management and financial and retirement planning determine that fee.
Some clients pay a commission, mainly those with smaller accounts, i.e., Roth IRAs, some public-school teachers with 403b retirement accounts, or parents or grandparents who set up a 529 college savings plan.
The first introductory and fact-finding appointment can be in-person or by phone. The next meeting where I provide my recommendations should be in-person.
Subsequent meetings during which we monitor your progress and investments can be done in-person or by phone, email, Zoom, or Skype – or, more likely, a combination of these meeting types.
401k Rollover Advice
Overview of Rollovers in Retirement Plans
Your 401k is one of the most significant assets you own. Deciding what to do with it when you leave your employer is a critical financial decision.
To help with this decision, the U.S. government has been on a ten-year quest to develop a regulatory scheme protecting participants’ retirement plans. While many rules involve advice, when someone is in the plan, a primary focus is the direction a financial advisor provides on whether you should roll your 401k to an IRA.
Unveiling the DOL’s Rollover Proposal: What it Means for Your IRA
The first such attempt happened in 2010 when the Department of Labor (DOL) proposed sweeping changes to the retirement landscape with their so-called Fiduciary Rule.
The proposal required financial advisors to act in the retirement plan participant’s best interests, including advising someone on whether they should roll their 401k into an IRA.
It barely got off the ground before the 5th Circuit Court of Appeals canceled it on March 15, 2018, when it ruled that the Department of Labor overstepped its bounds.
New Regulatory Silos: IRA Rollover Considerations
In addition to sweeping bank reforms, the 2010 Dodd/Frank bill tasked the SEC with reviewing the two regulatory silos that financial advisors come under to merge the two into one possibly.
You might be surprised that there are two silos. The first is for broker-dealers who worked under a suitability standard. The second is for investment advisors who, in addition to suitability, are fiduciaries who owe their clients a higher loyalty.
Regulation Best Interest
Beginning June 30, 2020, broker-dealers will operate under a new Regulation Best Interest standard. This requires brokers to better align their interests with clients by eliminating conflicts of interest, such as proprietary product requirements, sales quotas, or sales contests.
Registered representatives (brokers) will be called financial professionals. Any advisors who are fiduciaries can continue calling themselves financial advisors.
Final Rule to Close the Retirement Plans Circle
The financial industry had just adapted to the new SEC rules. On July 7, 2020, the Department of Labor issued a final rule to close the circle, begun by the 2010 Fiduciary Rule and the new SEC best interest rule.
The DOL rule returns the five-point test to determine if an advisor is a fiduciary for purposes of ERISA.
- The financial advisor must render advice as to the value of securities or other property;
- The advisor must do so regularly;
- The advisor must do so under an agreement with the client;
- That advice will serve as a primary basis for the client’s investment decisions and
- The recommendation is to be based on the particular needs of the investment or retirement plan.
It also withdrew guidance from the so-called Deseret Letter. The DOL had opined that rollover recommendations were not fiduciary investment advice in that guidance.
Financial Advisor Tim Hayes Believes the DOL Got It Right
Financial Advisor Tim Hayes believes the Department of Labor (DOL) hit a home run with its new retirement advice rule by balancing new consumer protections and additional burdens on the financial services industry.
Fixing the Law
By eliminating a 1975 rule made when pension plans were much different than today, the Department of Labor rectifies the contradiction that financial advisors with conflicts of interest are providing financial advice to retirement accounts even though ERISA, the law governing these accounts, prohibits this from happening.
Lowering Investment Fees
What does the new rule mean for consumers? “If you have a 401(k) or 403b, the advisor fees might come down. If you roll over the 401(k) or 403b to an IRA, the fees in the IRA should be competitive with what they were in the 401(k).
Suppose you leave one employer and move to another offering a defined contribution retirement plan. In that case, you can roll over to that plan your account from your previous employer. Much like rolling into an IRA, you need to weigh the costs and benefits of the old with the new one, looking at the investment choices and their fees relative to the previous plan.
It is hard to see how this transaction would bring in the new DOL Fiduciary Rule or the SEC Best Interest, as both involve financial advisors or professionals in decision-making. Maybe if the advisor is a fiduciary at the new plan and they are advising you if you should roll the old one into the new one.
One significant advantage of remaining in a 401k plan is ERISA protections. ERISA, the 1974 law, provides protections that, in some cases, depending on what state the owner lives in, IRAs might not have. For example, ERISA provides protections for the spouse of a 401k owner in the form of beneficiary requirements. It also protects against creditors in bankruptcy proceedings. Most IRAs do not come under ERISA, so that any protections would come from state law.
Distribution is the third option. Here, the plan administrator sends you a check with 20% withheld for federal taxes and the appropriate state taxes. You report the distribution on next year’s taxes, and a 10% penalty could apply depending on your age. You do have 60 days to roll over a distribution; however, if you can not find the amount of taxes also withheld, then only the net amount paid to you would be considered the total rollover amount.
Rollover Advice Near Me
M – Rollover Advice Near Me
- Manchester by the Sea
- Marblehead – I worked at the Corinthian Yacht Club during college
- Martha’s Vineyard
N – Rollover Advice Near Me
- New Bedford
- North Andover
- North Attleborough
- North Reading
P – Rollover Advice Near Me
R – Rollover Advice Near Me
S – Rollover Advice Near Me
- Salem- I lived in Salem after college
T – Rollover Advice Near Me
W – Rollover Advice Near Me
So, Back to the Question: Should You Roll Over Your 401(k)?
As you can see, the government is concerned that people who roll a 401k to an IRA pay higher fees. If you have a plan with institutional share classes, work with a financial advisor, and move your plan to an IRA, your costs will likely increase.
However, many 401k plan participants work for employers that do not offer institutional pricing or a great fund lineup. They can roll over without incurring higher expenses and maybe end up with better choices.
There are other reasons to do a rollover besides costs: convenience, not having to deal with the plan for withdrawals, beneficiary changes, or other housekeeping changes.
Also, the skill set involved in growing your accounts differs from providing income. Maybe you will find a financial advisor well-schooled in bonds, annuities, dividend stock funds, and the tools needed to generate retirement income.
The advisor could also provide additional services such as estate planning. They can keep you abreast of vital rule or law changes, such as the recent change that made having a trust as a beneficiary in a retirement account less appealing.
How Do I Request a Direct Rollover?
If you decide to roll over your 401k to an IRA, the best way is to do it directly, meaning that the account should go straight from the 401k to the IRA.
If you receive the 401k withdrawal, the 401k plan must withhold 20% for taxes on any eligible rollover distribution. The client will have 60 days to roll that distribution into an IRA; however, if they don’t have the 20% available, the amount withheld for taxes on the gross distribution will become taxable.
Most 401k plans have their rollover process. Depending on the plan, a form or a phone call may initiate the transfer. Some plans mail the check to the client. You want to ensure a check is made out to the client’s new IRA FBO. That way, the plan is not required to withhold 20% for taxes.
If you receive a check, there is no need to sign it before you send it to the IRA custodian, as it has already been made out to that custodian. The following year, you will receive a 1099R from your former 401k plan, letting the Internal Revenue Service (IRS) know you rolled over your retirement plan distribution.
Any rollover advice falls under new requirements when working with a financial professional. First, the advisor should make a reasonable effort to determine the costs and fund lineup in your 401k plan. The advisor should compare these to an IRA investment and present both to the client so they can make a more informed decision.
Do I Need to Roll Over My Account for You to Provide Advice?
No. You don’t need to roll over your accounts to get advice. I offer flexible payment options for clients. You can pay me an hourly fee if it costs you more to roll it over.
One of the reasons the Department of Labor created the new Fiduciary Rule is their concern that financial advisors are recommending clients roll their 401k or 403b when it would cost them less to keep their money in their previous employer’s plan.
Fiduciary IRA Rollover Checklist
- Review the fees in your 401k plan or 403b
- Review the fund lineup in your 401k plan or 403b
- Check if there are enough choices to provide retirement income security
- Calculate your retirement risk-tolerance score
- Compare your retirement risk score with your current 401k or 403b allocation.
- Recommend leaving your 401k or 403b in your plan or rolling it to an IRA.
- Design your retirement portfolio in your 401k, 403b, or IRA using your retirement risk tolerance and income goals.
Your 401k is one of the most significant assets you own. Deciding what to do with it when you leave your employer is a critical financial decision. With the government on a ten–year quest to develop a regulatory scheme that protects retirement plan participants, it is important to understand the rules and regulations that govern the process of rolling a 401k to an IRA. The Fiduciary Rule, Dodd/Frank, and the new SEC and DOL rules all have an impact on the decision. Ultimately, the decision to roll over a 401k to an IRA should be based on the individual‘s particular needs and the fees associated with the move.
Please be sure to speak to your advisor to consider the differences between your company retirement account and investment in an IRA. These factors include, but are not limited to, changes to the availability of funds, withdrawals, fund expenses, fees, and IRA-required minimum distributions.