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When employees who contribute to a 401(k) plan retire, they have choices about what to do with the money.
Depending on what your employer’s retirement savings plan allows, retired employees may be able to keep the money in their current plan, roll it over to an IRA, or purchase an annuity. In some cases, your employer may force you to close your small account.
Guidance an investor receives from a financial professional or financial company regarding the treatment of an old 401(k) is exempt from the investment advice rules. And there are different standards for financial advice. Being a ‘fiduciary’ is the highest standard and advice must be in the client’s best interests.
The Biden administration wants investment advice in making these decisions to come from fiduciaries, and the Labor Department is proposing rules to make that happen.
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Some in the financial industry oppose the proposed rule, saying it would create a regulatory burden and deny millions of Americans access to guidance from financial professionals who earn commission-based sales. They also argue that current laws are in place to protect consumers seeking financial advice.
Some lawmakers share these concerns. “There are going to be two types of investors left: investment advice Those who can afford it and those who cannot.” new rules.
Rep. Ann Wagner (R-Missouri) will chair a House Capital Markets Subcommittee hearing on the Department of Labor’s proposed fiduciary rules.
Source: House Committee Video
Others argue that consumers who contact financial professionals for one-time events such as rollovers may not be getting the best advice for them.
“I was recently approached by a former financial professional who encouraged me to use my modest retirement nest egg to purchase insurance products that were not suitable for me,” certified financial planner Camilla Elliott told the subcommittee during Wednesday’s hearing. “I met a woman who was young,” he said. Elliott, CEO of Collective Wealth Partners in Atlanta, is a member of the CNBC FA Council.
“If she had invested in a diversified portfolio and a qualified retirement plan, she would have amassed tens of thousands of dollars more in retirement assets today,” Elliott said.
As the debate continues, experts say retirement savers should seek professional help to help them make important financial decisions, such as what to do with the money in their 401(k) and 403(b) accounts in retirement. He says we need to keep asking questions at home. Here are some tips:
Reviewing and understanding your options is essential to protecting your nest egg. Plan administrator brokers may not consider whether you are married or what other assets you have access to in retirement when making recommendations.
Find out what fees you’ll incur on investment choices, such as rolling over 401(k) money into an IRA or purchasing an annuity. Investment funds in 401(k) plans have lower costs compared to IRA plans.
For many people, continuing with a previous employer’s plan may be a good option.
Christopher Lazzaro says, “Large companies take their 401(k) plans very seriously, work with professional institutional investment consultants to scrutinize the investments that go into the plan, and generally invest in low-cost “We’re trying to establish access to investment options.” He is the founder and president of Plan For It Financial, a fee-only, advisory-only financial planner in Swampscott, Massachusetts.
Ask your financial professional how they are paid.
Knowing what benefits are available to you from financial professionals is an important factor in determining whose advice you should trust and follow. Advice on rolling over funds to an IRA or purchasing an annuity may result in commissions or other compensation for brokers and agents.
In contrast, fee-only advisors make money solely through direct commissions from their clients. These fees may be based on a percentage of the money you manage, or may be billed by a service fee or by the hour.
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