401K Rollovers, IRAs, RMDs and Fiduciaries

Are you planning to roll your 401K account into an IRA when you retire? As a rule that’s exactly what we recommend that our clients do, and for some very good reasons:

  1. A direct rollover is not a taxable event, so the beneficiary can continue to defer taxation of income and gains just as if the assets had stayed in the employer’s account.
  2. Our clients’ rollover funds are very likely to have substantially lower expenses than the employer’s funds. Lower expenses generally lead to higher investment returns.
    1. 12 of our clients’ core holdings have annual expense ratios of less than 15 basis points. That’s 0.15% (0.0015).
    2. The core US large company stock fund has an annual expense ratio of 3 basis points. That’s 0.03% (0.0003).
  3. Retirement accounts, including IRA accounts are generally safe from attachment by creditors.
  4. The range of investment choices available to our clients is HUGE, including exchange traded funds, stocks, bonds, closed end funds, and mutual funds.
  5. Transaction costs are very low. In the case of most of our core holdings the transaction costs are ZERO.
  6. We receive no commission income or hidden compensation. We provide our clients with the best advice and service that we know how to provide without the conflict of interest created by contingent or hidden compensation arrangements.

Some advisers may not be able to advise IRA rollover clients under the proposed new Department of Labor fiduciary standard. As recently reported in the Wall Street Journal:

…Under the rule as last proposed, advisers will generally have to avoid conflicts of interest and put their clients’ best interests first—both when recommending investments for IRAs and when suggesting moving money from a company plan to an IRA in the first place, which is known as a rollover.

The new rule will make it harder for advisers to recommend such a move, as they will have to clearly document why it is in a client’s best interest. Additionally, once the money is in an IRA, advisers would generally have to avoid payments, including commissions, that create incentives for them to select one product over another.

Advisers to individuals typically have an incentive to recommend rollovers, since they stand to earn fees or commissions on the dollars shifted to IRAs…

…The expected Labor Department rule for retirement savings would be a change from current regulation, which allows brokers to provide “suitable” rather than fiduciary advice… [Note: Fiduciary is a higher standard.]

…Participants in 401(k) plans who invest in stock mutual funds pay annual expense ratios of 0.54%, on average, versus 0.71% for IRA owners, according to the mutual-fund industry’s Investment Company Institute… [Also please note that the above stated averages of 0.54% and 0.71% are in contrast to the 0.15% operating expense ratio charged in our clients’ 12 core holdings as stated above.]

The bottom line: We embrace the fiduciary standard. Always have. And you should not accept anything less from your financial adviser.

And speaking of IRAs, if you turned 70.5 during 2015 and have not taken your first required minimum distribution, you must take it by Friday, April 1, 2016 in order to avoid a penalty. There are, of course, exceptions. Click here for more information.


Dear IRS...

Dear IRS…






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