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How To Analyze Rollover Options At Retirement
Advisors break down the complex considerations when clients with a 401 ( k ) leave the workforce . By Ben Mattlin
HELPING CLIENTS DECIDE WHAT TO DO WITH their 401 ( k ) s after they leave the workforce can be complicated . There are many factors to consider , from investment returns to taxation to inheritance issues and so on . Experts have some advice . “ Most [ retirees ] are not managing or even looking at their 401 ( k ) s , yet for the majority of clients this is their largest source of accumulated assets and wealth ,” says Jordan Sowhangar , vice president at Girard , a Univest Wealth division in King of Prussia , Pa .
While it might have been fine for them to just leave their 401 ( k ) s alone before when they were young and accumulating assets , she says , retired clients have found that their situation has changed . She points to their shorter investment time horizon , their need to manage on a fixed income , their possibly higher healthcare expenses and the required minimum distributions they have to take after age 73 . “ It is , therefore , more important than ever to have control over your possibly largest source of liquid assets ,” she says .
For most clients , it probably makes sense to convert 401 ( k ) assets to an IRA , or several IRAs , advisors say . “ I have almost never seen a 401 ( k ) offer more cost-effective options than what you can achieve in an IRA ,” says Rachael Camp , a CFP Board ambassador and founder of Camp Wealth in Denver . “ IRA accounts allow for consolidation and simplification , provide the ability to choose a custodian you like , and offer unlimited investment options .”
Clients can simplify their accounting , inheritances and required distributions by consolidating their assets in an IRA , Camp explains . These accounts generally provide a much broader array of investment choices than 401 ( k ) s , with options such as exchangetraded funds ; annuities ; and alternative investments such as precious metals , real estate and even hedge funds . IRAs also offer the freedom to work with any investment advisor , she says .
Some 401 ( k ) plans also have higher fees , which can make IRAs preferrable , especially if the clients are more cost-sensitive or investment savvy .
The simplest way to move assets from a 401 ( k ) to an IRA is via a direct rollover by the financial institution managing the 401 ( k )
OCTOBER 2024 | FINANCIAL ADVISOR MAGAZINE | 51