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Q&A: Helping Clients Answer “Should I Consider Rolling Over a 401(k)?”

An approach designed for advisors providing best-interest advice

Morningstar Staff


Millions of retirees are facing a significant decision about what, if anything, to do with the savings they have accumulated in their 401(k)s or other defined-contribution plans. Many workers who change jobs encounter this same, sizeable question: Should I roll over my 401(k)?

Investors clearly face a number of choices, but not a clear idea about what may be the best choice for them.

David Blanchett, head of retirement research for Morningstar Investment Management, worked with Paul Kaplan, director of research for Morningstar Canada, to develop a framework that advisors can follow as they explore whether a rollover is the appropriate recommendation. We asked Blanchett a few questions about this approach. Read some of his answers below, or download our paper to read them all:

Q: What options do investors have for their retirement funds when they leave a job?

Blanchett: When leaving a job, you can choose to keep your balance in the company’s 401(k) plan or take it with you. If you’re going to work for a new company, you can probably roll it into that plan. You also can roll it into an IRA. There are clearly a lot of choices, but what isn’t always as clear is what is the best choice for the investor. Our approach helps advisors and investors figure this out.

Q: Is there a deadline or timeframe in which investors need to make a choice about what to do with their retirement savings?

Blanchett: Not really. If you’re moving to a new company, you can typically roll money into that plan whenever you want. Or you can often choose to leave the money in your existing plan for as long as you’d like. Some plans have rules that may limit things though, so it’s important to check out the exact rules within each plan.

Q: So why have this methodology?

Blanchett: There has been an incentive, and there still is today, for advisors to focus on selling investors products versus offering them advice. Many financial professionals today are paid based on commissions, and so they often have an incentive to make recommendations that may not be what’s best for a client. With the Department of Labor’s conflict of interest rule, there’s a specific focus on advice for IRAs. This approach helps answer the question, “Is this actually in the person's best interests?”

This blog post is adapted from our research paper  "To Roll or Not to Roll: A Framework for Implementing the DOL Fiduciary Rule for IRA Rollovers."

Please see below for important disclosure. 

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Important Disclosure

Morningstar Investment Management LLC is a registered investment adviser and subsidiary of Morningstar, Inc. This is for information purposes only and should not be considered financial planning, tax, or legal advice. Please consult a financial adviser, legal, and/or tax professional for advice regarding your personal situation. Morningstar Investment Management shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use.  

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