What to Do with Your 401(k) When You Leave a Job
When you leave a company where you contribute to a 401(k) plan, you have several options for what to do with that money. You can keep it in the current plan, roll it over into an IRA, or buy an annuity. However, there are different standards for financial advice regarding these decisions.
The Biden administration wants investment advice to come from a fiduciary — someone who must act in your best interest. The Department of Labor has proposed rules to make this happen. However, some in the financial industry argue that the rule would shut out millions of Americans from receiving guidance from commission-based financial professionals.
Financial planners suggest reviewing investment options and fees, understanding how advisors are compensated, and finding fiduciary financial advisors. It’s important to ask questions and make informed decisions about what to do with your 401(k) or 403(b) account when leaving an employer.
Review Investment Options and Fees
To protect your nest egg, it’s essential to review and understand your options. Some brokers may not consider your marital status or other assets when making recommendations. Be sure to find out what fees will be incurred for different investment choices.
In many cases, staying in your former employer’s plan may be a good option because larger companies take their 401(k) plans seriously and offer low-cost investment options vetted by professional institutional investment consultants.
Know How the Advisor Is Compensated
It’s crucial to ask how the financial professional is paid. Knowing their compensation structure can help you determine whose advice you should trust. Some advisors receive commissions for recommending actions like rolling over funds into an IRA or buying an annuity.
On the other hand, fee-only advisors only make money from direct fees paid by clients. These fees may be based on a percentage of the managed money or charged on a fee-for-service or hourly basis.
Find Fiduciary Financial Advisors and Vet Them
Look for financial advisors who are fiduciaries and have a legal obligation to act in your best interest. It’s essential to thoroughly vet potential advisors and ensure they have the necessary qualifications and experience to provide sound advice.
Hot Take: Making Informed Decisions About Your 401(k)
When it comes to deciding what to do with your 401(k) after leaving a job, it’s crucial to be well-informed. The Biden administration is pushing for investment advice to come from fiduciaries who prioritize your best interest. However, there is opposition from the financial industry, arguing that this rule would exclude many Americans from receiving guidance.
To navigate this decision-making process effectively, review your investment options and fees, understand how advisors are compensated, and find fiduciary financial advisors who will act in your best interest. By asking questions and seeking out reliable professionals, you can make informed choices about your retirement savings.
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