GAO Warns on Misleading 401k Rollover Info

How to avoid a 401k rollover mistake: Internet Scambusters #562

When it comes to switching jobs, are you getting accurate advice on whether and how to transfer your retirement investment -- better known as a 401k rollover?

The Government Accountability Office (GAO) thinks not -- at least with some financial advisers.

That could lead to a costly mistake, as we explain in this week's issue.

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Let's get started...


GAO Warns on Misleading 401k Rollover Info


Trying to plan for a secure retirement is tough enough in today's shaky economic environment, but when you have to make additional decisions like whether or not to do a 401k rollover, you risk being misled, intentionally or otherwise.

That's the warning from the Government Accountability Office (GAO) in a new study of the rollover process.

Put simply, a 401k rollover is a transfer of tax-advantaged funds and investments in your employer-sponsored retirement plan into either another 401k or an IRA -- an Individual Retirement Account.

With a 401k, the investment options are usually selected by the employer; with an IRA, individuals are responsible for selecting and monitoring their own investments.

A 401k or IRA may be managed by exactly the same service provider. It's just a different arrangement, but IRA fees can be higher.

Usually a rollover happens when an individual changes jobs and leaves the employer where the original 401k was set up.

However, that individual may also be able to leave that 401k with their old employer when they move on and collect from it later, when they retire.

By using these options, rather than cashing out, you retain the tax advantages, but which should you choose?

Disclaimer

First, let's issue an important disclaimer:

Scambusters does not give financial advice and we are not responsible for any investment decisions you make. You should seek advice from a qualified professional when making investment decisions.

We just want to pass on the GAO warning, so you can make your own informed decisions and avoid being misled.

GAO Concerns

Here are the main points of their concerns:

Proceed With Caution

So, what can you do to make a better-informed decision?

Most of the action GAO is calling for is directed at improvements by employers, government and service providers but if that ever happens -- and, let's face it, that could be a long way off -- it's still going to be up to you to look after your best interests.

So, here are some of the actions you can take if you're leaving your current job with a 401k:

Above all, remember that this is your money and your future. When it comes to a 401k rollover, it pays to educate yourself, exercise caution and seek advice from people you know you can trust.

NOTE: To repeat our earlier disclaimer, the information above does not constitute financial advice.

Time to conclude for today -- have a great week!

 

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