To Roll or Not to Roll: A Framework for Assessing the Benefit of IRA Rollovers

Abstract

The U.S. Department of Labor’s new fiduciary rule will significantly affect U.S.-based financial advisors that provide guidance on individual retirement account (IRA) rollovers. The new rule requires all advisors to act as fiduciaries when making recommendations and/or giving advice on defined contribution (DC) plans or IRAs—including recommendations for a rollover or a distribution. There is little research on what determines whether a rollover is in the best interests of an investor. This article briefly outlines a framework to make this decision, with a focus on the potential decision to roll retirement savings into an IRA managed by a financial advisor. Fees, the quality and scope of investments offered, and the quality and scope of services being provided (e.g., financial planning), as well as other unique considerations should all be considered. The authors suggest that the potential benefits of rolling funds out of a DC plan depend on the unique circumstances and preferences of each investor, and therefore considerable care is needed to ensure that the proper decision is reached. <b>TOPICS:</b>Retirement, legal/regulatory/public policy