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Beware the Rollover Offer: 5 Important Questions to Ask

Last week, one of my aunts asked me about rolling over an old 401(k) plan.  She had been getting calls from a friend saying she can get up to $8,000 in bonuses/incentives if she does the rollover now.  Wow, I thought, this is way beyond the usual $100 or $200 cash offers I’ve seen.

New Law Not in Full Effect

My remark to her was - Beware!  I told her of the new law I wrote about last month, and that we recently learned that the protections actually don’t come into full effect until April 2017.

I suspect that unscrupulous brokers and insurance agents are on a tear to get all the rollover accounts they can before they can actually be held to a higher standard for their “clients”.

Many people don’t realize that there are many trade-offs involved when rolling over a retirement account with their employer.  They also don’t realize that an IRA (Individual Retirement Account) is a type of account - basically it's an empty box; whereas the financial products or investments - that are often “sold” - are what go inside the box.

5 Questions to Ask

Here are some important questions to ask a representative before making a rollover; along with some comments – be sure to get your answers in writing:

  1. Are there investments that I have access to in my 401(k) that I cannot access after the rollover to an IRA?  Depending on the IRA account custodian and your current retirement plan, several investments such as “Stable Value” funds will not be available.
  2. What account features, protections, or tax benefits would I lose by rolling over my account?  Depending on state law, you could be giving up a certain level of bankruptcy protection on your account.  Furthermore, certain features unique to your 401K may be given up such as “Net Unrealized Appreciation” for company stock and the ability to take penalty-free withdrawals at age 55 versus 59 ½ with an IRA.
  3. Would there be surrender charges or other fees if I decide to move my account to another company 1 month after the rollover? This is an important question to ask because it will also help uncover the type of investment (annuity, mutual fund, etc.) that will be recommended and perhaps how the representative is paid.
  4. Do you recognize a fiduciary duty when advising me?  This is the issue the new law is helping to address, but is not yet in effect.
  5. How are you compensated (how much will you make if I rollover my account)?  This seems like an awkward question, but it’s the most important question to ask!