There are several reasons for clients to consider a rollover from an employer retirement plan to an IRA at retirement — and in some cases, even earlier. The appeal of a rollover may be supported by a variety of benefits to clients, including (but certainly not limited to):
- Greater access to their retirement investments
- Wider selection of investment options (and more choice over costs and fees)
- 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 his or her employer. Certain caveats may exist, and under the care obligation of Reg BI standards requiring diligence, skill and care with regard to recommendations,1 and advisors need to have a deep understanding in order to best inform clients.
Financial professionals can benefit from the right support and resources to help identify clients who may benefit from a rollover, help them choose whether and when to roll over their employer-based retirement plans, and take the correct steps to implement the rollover.
Even prior to retirement, astute advisors can help identify rollover opportunities that may help their clients achieve the benefits described above. Here are a few examples to keep in mind:
1. In-Service Distributions for Still-Working Clients
Some employers may allow for In-Service Distributions from the employer plan as early as age 59.5 without penalty. In some cases, still-working clients may get a head start on planning with their preferred, personal financial advisor. In addition, 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
Investments in an employer’s stock can provide another opportunity for tax-favorable distribution, and identifying a client’s employer stock ownership in any qualified plan should prompt an advisor to consider a Net Unrealized Appreciation strategy. A properly implemented distribution-in-kind of highly appreciated stock can gain a client 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 for others, but in the right circumstances, certain clients may save thousands of dollars in taxes.
Divorce is a life event that can affect clients of any age. Under a Qualified Domestic Relations Order (QDRO),2 a non-employee spouse could be awarded a portion of the employee’s retirement account. 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 to successfully roll over these funds, and reinvest appropriately — apart from the employer plan.
All these opportunities and more are outlined in detail in ElevateTM Advanced Planning Resources, provided by CUNA Mutual Group Annuity Solutions to help advisors meet both their regulatory obligations and their clients’ needs. This library of resources — available to CUNA Mutual Group-appointed advisors — can provide reminders and step-by-step guidance to help advisors implement less common opportunities. Visit today to learn more.
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™
Marshall is CUNA Mutual Group's Advanced Planning Expert and has more than 25 years experience in the insurance and financial services industry. He consults Financial Advisors on advanced retirement planning concepts for retirement and wealth management clients.
1 U.S. Securities and Exchange Commission, SEC Adopts Rules and Interpretations to Enhance Protections and Preserve Choice for Retail Investors in Their Relationships With Financial Professionals, June 5, 2019.
2 Internal Revenue Service, Retirement Topics - QDRO - Qualified Domestic Relations Order, January 9, 2020.
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