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.
How Do I Request a Direct Rollover?
If you decide to roll over your 401k or 403b to an IRA, the best way is to do it directly, meaning that the account should go directly from the 401k or 403b to the IRA.
If you receive the 401k or 403b withdrawal, the 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, then the amount withheld for taxes on the gross distribution will become taxable.
The plan sells the funds and sends over the amount as cash when you do a direct rollover. If you initiate a rollover today and have funds in the stock market with the stock market down some 20%, you will be selling with prices.
The rollover can then be invested back into the stock market when the check is received at the IRA. However, reviewing your retirement allocation as you move closer to retirement is a good idea.
How Do I Roll Over a 401k Directly?
Most 401k plans have their own rollover process. Depending on the plan, either a form or a phone call may initiate the transfer. Some plans mail the check to the client. You want to make sure that 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 IRS know that 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.
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.