To Roll or Not to Roll

That’s the rollover question. Do you have the answer?

Jim Lorenzen, CFP®, AIF®

Getting rollover advice isn’t always straightforward.

There’s a difference between a “financial advisor” or “financial planner” who really uses “planning” as a vehicle to sell products – yes, Virginia, they do exist – and a true advisor/planner who provides independent and objective analysis as a part of his or her service to clients.

Wasn’t that commercial subtle?

Nevertheless, when deciding whether or not to roll over your company retirement plan to a self-directed IRA, there are considerations and analysis to be considered before making this irrevocable decision.

Here’s a brief – read that as ‘oversimplified’ and incomplete – hint of the types of issues you should consider:

Sample of 401(k) issues:

  • Maybe no required minimum distributions (RMDs) when you hit age 72 if you’re still working and not a 5% owner of the business you work for.   Maybe.  You need to check with your plan administrator – some plans still require RMDs even if still employed.

  • Expenses in the 401(k) plan may be less.  Maybe.  This is a murky area as some plans are sold to employers as being ‘free’.  It’s a myth, of course, as often costs may be hidden even from the company plan sponsor.  Often plans offer a large menu of options, but not all are ‘open architecture’; many are pre-packaged.  Your financial advisor should be able to provide a full independent comparison expense analysis of your plan holdings vs. the IRA holdings you’re considering.

  • ERISA protections (Employment Retirement Income Security Act) protect your 401(k) assets from creditors (except IRS levies).  Only qualified ERISA plans have this protection – 403(b) plans offered by state and local governments might not qualify for this protection.

Sample of IRA issues:

  • You can contribute as long as you’re working, regardless of age.

  • Unlimited menu of investment options.  Many do not allow self-directed brokerage

  • Not protected by ERISA but rollovers is protected under federal bankruptcy law.  Amounts not rolled over (money from other sources) are protected up to $1 million, indexed for inflation every three years.
  • Option to convert an IRA to a Roth IRA.  You’ll need to pay taxes on the conversion – and they should be paid from other assets to capture the full advantage – and the Roth IRA will need to be funded for at least five years with the owner reaching age 59-1/2 (or disabled) when distributions are made.   The current historically low income tax rates are set to expire in 2026 and could be replaced sooner.  Taxes appear to be ‘on sale’ now – so this is an attractive option for many taxpayers, particularly in light of the SECURE Act, but that’s another subject (see SECURE Act under Categories on the right side panel of this blog).

Remember to plan BEFORE you act.  Ready, fire, aim seldom works out well.



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Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

Opinions expressed are those of the author.  The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.