DOL PTE 2020-02

IRA Rollover Guide

It's important to understand your retirement plan options when you leave your employer. If you've retired or changed jobs, you may have questions about whether to roll over your employer's 401(k) retirement plan.

You typically have four options for your old 401(k):

Option 1

Roll over the money to Traditional or Roth IRA (Roll it)

Option 2

Leave the money in your former employer’s 401(k) plan (Leave it)

Option 3

Move the money to your new employer’s 401(k) plan (Move it)

Option 4

Cash out the 401(k) account, which is subject to tax consequences (Take it)

IF YOU ROLL OVER ASSETS INTO AN IRA FROM AN EMPLOYER-SPONSORED PLAN, CONSIDER:

Rolling your 401(k) into an IRA is an option that offers several benefits.

Tax Deferral. Your money will maintain its tax-deferred status. No taxes or penalties are applicable for direct rollovers.
More Investment Options. IRAs generally allow for a broader range of investment options, which may include mutual funds, exchange-traded funds, stocks and bonds. IRAs may also offer you access to products with a defined benefit guarantee and products with an income or withdrawal benefit guarantee.
Consolidation of Retirement Accounts. Combining all retirement plan accounts into a single IRA may make it easier to track your assets and manage required minimum distributions required under federal tax laws.
Inability to Take Plan Loans/Limited Access to Monies Prior to age 59½. You will not have the ability to take penalty-free withdrawals or loans from an IRA. In addition, your access to IRA assets prior to age 59½ will be limited to certain specific circumstances, such as first-time homebuyers and higher education expenses.
Potential Conflicts of Interest. Your financial professional, who may or may not be a fiduciary to your company’s retirement plan, has a financial incentive to recommend an IRA rollover because of the compensation that he/she may receive when you transfer funds from an employer-sponsored retirement plan.
Loss of Plan Options. You may lose certain options offered by your former plan, which may include, but are not limited to, guaranteed interest rates, death benefits and protection from creditors (under certain plan types).
Potential Charges for Rollovers. There may be higher costs associated with a rollover and surrender charges could be imposed by the plan provider if the account included an annuity.
Additional Services. IRAs generally offer access to more client-related services, including investment advice and management services.

IF YOU KEEP YOUR ASSETS IN CERTAIN TYPES OF EMPLOYER-SPONSORED PLANS (e.g., 401(A) OR 401(K)), CONSIDER:

Leaving money in your current 401(k) may be an option, depending on the terms of your plan. Many additional factors, such as the option to add money and make certain investment choices, will also depend on the terms of your plan.

Tax Deferral. Your money will maintain its tax-deferred status within the plan.
Additional Withdrawal Allowances. There is no federal tax penalty for withdrawals if you are age 59½ or separated from employment during or after the year you reach age 55.
Low Cost Investment Options/Investment Strategy. You may have access to low-cost mutual funds or special products that are not available in an IRA, such as company stock, fixed annuity contracts or stable value options. Also, you can maintain your current asset allocation strategy.
Protection from Creditors. Assets in a retirement savings plan such as a 401(k) or 403(b) are generally protected from creditors and legal judgments, while assets in IRAs receive more limited protections from creditors.
Deferral of Required Minimum Distributions (RMDs). Your employer-sponsored retirement plan may offer this feature if you are currently working for the sponsoring employer, are over age 72, and do not have 5% or more ownership in the employer.
Availability of Company Stock as an Investment Option. If you hold company stock in your employer-sponsored plan, you should consider the potential loss of the net unrealized appreciation benefit by rolling company stock into an IRA.
Availability of Later Rollovers. If you retire or leave your employer and your employer’s plan allows you to keep your money in your plan, you still have the option of a rollover at a later time when you’ve been able to more carefully consider your options.
No Additions. If you are retired or leave your employer, you may not be able to make additions to your former employer’s plan.

Contact your plan administrator to learn more about fees and the terms of your plan. Your Participant Fee Disclosure and/or Summary Plan Description should have this information.

IF YOU ROLL OVER ASSETS INTO ANOTHER EMPLOYER-SPONSORED PLAN, CONSIDER:

Moving money to your new employer’s 401(k) may be an option, depending on whether your current employer has a 401(k) plan and the terms of the plan. Like your former employer's plan, many factors ultimately depend on the terms of your plan.

Tax Deferral/Additional Withdrawal Allowances/Low Cost Investment Options/Protection from Creditors/RMD Deferrals. Similar to keeping your assets in your existing employer-sponsored plan, if you move your assets into a new employer’s retirement plan, you may likely receive similar benefits such as these, as noted above.
Consolidation of Retirement Accounts. It may be easier to track your assets and manage your retirement plan accounts with all your money in one place.
Plan Limitation on Accepting Rollover Assets. You must check with the receiving employer-sponsored plan to confirm that it is willing to accept rollovers.
Possible Limitations on Access to Funds Rolled into Plan. Check with the receiving employer-sponsored plan to consider any restrictions imposed by the new plan on your ability to access or withdraw funds rolled into the plan.

Contact your plan administrator to learn more about fees and the terms of your plan. Your Participant Fee Disclosure and/or Summary Plan Description should have this information.

IF YOU TAKE A CASH DISTRIBUTION, CONSIDER:

While withdrawing your money is an option, in most circumstances, it means those funds will not be there when you need them in retirement. In addition, cashing out your 401(k) generally means you'll have to pay taxes on the withdrawal, and there's typically an additional 10% tax penalty if you're younger than 59½, unless you left your employer in the calendar year you turned 55 or older.

Withdrawals May Be Subject to Withholding, Penalties, and Other Charges. The withdrawal will be subject to mandatory tax withholding, as well as applicable tax penalties for early withdrawal (with limited exceptions) if you are under the age 59½. You may also be subject to surrender charges or penalties assessed under the terms of the applicable investment.
Net unrealized appreciation: special considerations for employer stock
If you own stock in your former employer and that stock has increased in value from your original investment, you may be able to receive special tax treatment on these securities. This is referred to as net unrealized appreciation (NUA). If you roll the employer stock into a traditional or Roth IRA or move it to your new employer’s plan, the ability to use the NUA strategy is lost. NUA rules are complex. If you're considering NUA, we suggest consulting with a tax professional prior to making any decisions on distributions from your existing plan.

ADDITIONAL CONSIDERATIONS

Plan Costs

Fees and expenses are factors that will affect your investment returns and your retirement income. A comparison between the actual costs of your current employer-sponsored plan and the costs of a potential rollover is an important consideration.

Types of Costs

Both employer-sponsored plans and IRAs typically involve (i) investment-related expenses and (ii) plan or account fees. Investment related expenses may include sales loads, commissions, the expenses of any mutual funds in which assets are invested, and investment advisory fees. Plan fees typically include plan administrative fees (e.g., recordkeeping, compliance, trustee fees) and fees for services such as access to a customer service representative. In some cases, employers pay for some or all of the plan’s administrative expenses. IRA account fees may include, for example, administrative, account set-up and custodial fees. You should identify and understand all of the fees and expenses associated with your current retirement plan account, any new retirement plan into which you contemplate a rollover, and any potential IRA into which you contemplate a rollover.

SPECIAL CONSIDERATIONS

Distributions from Defined Benefit Plans

Defined benefit plans generally offer income for the life of a participant and possibly for a spouse. These plans are generally insured by the Pensions Benefit Guarantee Association. A distribution from these plans will lose these benefits and may be based on the present value of the participant accounts and not these future benefits.

You should carefully consider any loss of benefits before any such distribution occurs.

In-Service Distributions from Defined Contribution Plans [e.g., 401(k) plans]

If you have outstanding loans that will not be repaid prior to such a distribution the amount of the loans will be deemed as taxable to you and may be subject to a 10% pre-mature distribution penalty.
You may be forfeiting matches from your employer that have not vested.
You may be forfeiting future benefits.

You should carefully consider any loss of benefits before any such distribution occurs.

Traditional IRA to Roth IRA Conversion

It is important to understand that converting from a Traditional IRA is a taxable event. It can be part of a successful strategy if you have the funds available outside of your retirement accounts to pay the taxes and one or more of the following apply:

You expect to be in a higher tax bracket in retirement than you are now.
You think the value of your IRA investments is hitting a low point.
You have other losses or deductions to offset the tax due on conversion.
You don’t need to take distributions by age 72.
You are moving to a state with higher income taxes.

These are the most common considerations for most customers when converting to a Roth IRA, but more nuanced and complex situations may arise; consult your tax advisor for more information.

Our Role and Fiduciary Acknowledgment for Retirement Accounts

We are providing you with the following acknowledgment for purposes of complying with the US Department of Labor’s (“DOL”) Prohibited Transaction Exemption 2020-02 (“PTE 2020-02”), where applicable. This acknowledgment will be effective when we rely on PTE 2020-02, which will be on February 1, 2022, or, if later, the date that the relief under DOL Field Assistance Bulletin 2021-02 (or subsequent similar guidance) ceases to be in effect. If there is a conflict between this disclosure and your agreement with the Firm, this disclosure will govern.

Fiduciary Acknowledgment

When the Firm and your financial professional provide “investment advice” within the meaning of Title 1 of the Employee Retirement Income Security Act and/or the Internal Revenue Code (“Retirement Laws”) to you regarding your retirement plan account or individual retirement account (“Retirement Account(s)”), we are fiduciaries under the Retirement Laws with respect to such investment advice. The way we make money creates certain conflicts with your interests, so we operate under a special rule that requires us to act in your best interest and not put our interest ahead of yours. Under these requirements, when providing certain investment recommendations, we must:

Meet a professional standard of care (give prudent advice);
Not put our financial interests ahead of yours;
Avoid misleading statements about our conflicts of interest, fees, and investments;
Follow policies and procedures designed to ensure that we give advice that is in your best interest;
Charge no more than what is reasonable for our services; and
Give you basic information about our conflicts of interest.

Rollovers and Transfers from an Employer Sponsored Plan

We may provide (1) general information and education to you about the factors to consider when deciding whether to move retirement assets to the Firm, or (2) a recommendation that you roll or transfer assets out of an employer sponsored plan to the Firm. If we provide you with a recommendation to roll assets out of an employer plan, you understand and agree that our analysis of the costs and services of your retirement plan, as compared to the costs and services the Firm provides, depends on the information you provide to us (or in certain circumstances, information we obtain from third-parties about the plan (or similar types of plans). You are responsible for updating us promptly if your investment objectives, risk tolerance and financial circumstances change.

Transfer of Individual Retirement Account (“IRA”) to IRA

If your financial professional makes a recommendation that you move assets from an IRA at another financial institution to the Firm, he or she is required to consider, based on the information you provide, whether you will be giving up certain investment-related benefits at the other financial institution, such as the effects of breakpoints or rights of accumulation, and has determined that the recommendation is in your best interest because (1) greater services and/or other benefits (including asset consolidation and holistic advice and planning) can be achieved with the Firm IRA; and (2) the costs associated with the Firm IRA are justified by these services and benefits.

Limitations to our Acknowledgment of Fiduciary Status

This acknowledgment of status under the Retirement Laws does not create or expand any “fiduciary” relationship, capacity or obligations of the Firm and your financial professional under any federal or state laws, other than the Retirement Laws. There are many communications and recommendations that are not considered to be fiduciary “investment advice” under the Retirement Laws (which are subject to change), including, but not limited to:

Recommendations with respect to non-qualified or taxable accounts you maintain with the Firm.
Communications that are educational or informational and not intended to be viewed or construed as an individualized/personalized suggestion for you to take a particular course of action with respect to your retirement assets. Examples include:
Information we provide about the performance of a security in your account.
Information and education about alternatives you have when deciding whether to roll out of an employer plan or transfer assets from one IRA to another.
Information we provide regarding the products and services we offer when you are considering whether to leave one financial institution to follow your financial professional to the Firm.
Marketing materials, including information, education, or general descriptions of our services, the products we make available to you, the fees we charge, and the reasons we think you should hire us to provide services to you for your retirement and other accounts.
Transactions or trades you execute without a recommendation from us, such as an unsolicited trade.
Episodic or sporadic recommendations and interactions that are not provided as part of an ongoing or regular basis advice relationship, or recommendations made when there is no mutual understanding that our investment advice will serve as a primary basis for your investment decision(s).

You understand that when you engage with the Firm and your financial professional in a commissionable brokerage relationship for your Retirement Account(s), the Firm and your financial professional do not agree to provide investment advice or securities recommendations on a regular or ongoing basis, or provide ongoing monitoring of your Retirement Account(s).Commissionable brokerage relationships are intended for “buy and hold” investment strategies and for those investors who choose to pay for our services through transaction fees instead of ongoing advisory fees. If you wish for us to provide ongoing fiduciary investment advice to you, please contact your financial professional to learn more about establishing an advisory account relationship with the Firm. The standards of care we are subject to under the securities laws for brokerage accounts do not create fiduciary status under the Retirement Laws. For example, if we provide securities recommendations in your “best interest” under applicable securities regulations, this does not mean that we are necessarily a “fiduciary” under the Retirement Laws.

More Information Regarding Fees, Services and Conflicts

For a description of our fees, services, and conflicts of interest, please refer to our Form CRS, Broker-Dealer Firm Brochure, and Form ADV (if applicable).