Remember these 3 employer retirement plan rollover opportunities

There are several reasons for clients to consider a rollover from an employer retirement plan to something else, such as an IRA, at retirement — and in some cases even earlier. Whether it’s in response to a volatile market or simply wanting to make adjustments and leverage new opportunities, the appeal of a rollover is real.

Such a rollover may be supported by a variety of benefits to clients, including (but not limited to):

  • Greater access to their retirement investments
  • Wider selection of investment options (including more choice over costs and fees)
  • More coordination and control of all their investments and retirement planning decisions
  • Ability to choose their own financial advisor

That’s not to say a rollover is the right choice for every client who has a retirement plan with their employer. It’s important to discuss clients goals and objectives, the realities of their accounts and what level of income they expect once they enter their retirement years. Your clients’ best interest must always be a top priority in any conversation about their options.

With this in mind, financial professionals should review client rosters to identify those who may benefit from a rollover and reach out to propose a conversation about it. From there, they can help clients choose whether and when to roll over their employer-based retirement plans, and help ensure they take the correct steps to implement the rollover.

Well prior to retirement, a keen advisor can help identify rollover opportunities that may help clients achieve the benefits described above. Consider the following examples.

1. In-service distributions for still-working clients

Some employer plans allow for In-Service Distributions from the employer plan as early as age 59-½ without penalty.1 In some cases, still-working clients may want to use the opportunity to get a head start on planning and active investing with their preferred, personal financial professional. 

Consider that IRAs may offer added benefits over an employer plan, such as access to penalty-free withdrawals for qualified higher education expenses or first-time home buyer exceptions.

2. Net unrealized appreciation (NUA)

Investments in an employer’s stock through employer stock purchase plans or employee stock ownership plans can provide another opportunity to take a tax-favorable distribution and roll it over appropriately. Identifying a client’s employer stock ownership in any qualified plan should prompt an advisor to consider an NUA strategy. 

A properly implemented distribution-in-kind of highly appreciated stock can get a client favorable capital gains treatment on growth over the original cost basis, versus ordinary income rates.

This approach may not apply to all clients and may not work as well for some as it does for others, but in the right circumstances, certain clients could save thousands of dollars in taxes by using an NUA strategy.

3. Divorce

Divorce is a life event that can affect clients of any age. Under a Qualified Domestic Relations Order (QDRO), a non-employee spouse can be awarded a portion of the employee’s retirement account.2 

Most often, the employer does not wish to maintain an account under the employer plan for a worker’s ex-spouse, so they may permit a rollover of QDRO distributions to an IRA in the name of the non-employee ex-spouse. 

An observant financial advisor may be in an excellent position to help the non-employee spouse successfully roll over these funds, and reinvest appropriately — apart from the employer plan.

Resources for guidance from TruStage™

All these opportunities and more are outlined in detail in Elevate™ Advanced Planning Resources, provided by TruStage to help advisors meet both their regulatory obligations and their clients’ needs. 

This library of resources — available to TruStage-appointed advisors — can provide reminders and step-by-step guidance to help advisors implement less common opportunities. Click the link below to learn more.

ElevateTM Advanced Planning Resources


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