The DOL (Department of Labor) has issued new fiduciary rules for advisors that many will not like. Amazingly, it took the DOL an astounding 476 pages just to tell advisors to do right by their clients. But that’s what’s here, at least for now. Like its predecessors, these rules may be revised or repealed altogether. But that doesn’t matter. The point is that once again the issue of what employees (clients or future clients) should do with their 401(k) when leaving employment has come to light, and this is an opportunity for every financial advisor. It’s a trillion-dollar IRA rollover opportunity!

The DOL states that nearly $800 billion in assets were rolled over to IRAs in 2022. That amount is expected to grow substantially as more workers retire or leave their jobs. These demographics create a huge opportunity.

Even if there were no DOL or SEC fiduciary rules, advisors should always be providing advice that is in the best interest of their clients anyway. That’s just good business, in any business. And it’s the right way to best help clients and build their trust. A client’s trust is the financial advisor’s most valuable asset.

These DOL rules simply remind us of how important these IRA rollover decisions are to your clients and their beneficiaries and also to the growth of your financial advisor business.

DOL Final Fiduciary Rules
The new fiduciary rules run a staggering 476 pages and include an unprecedented 300 references to IRA rollover advice.

The DOL states that: “Decisions to take a benefit distribution or engage in a rollover transaction are among the most, if not the most, important financial decisions that plan participants and beneficiaries, and IRA owners and beneficiaries are called upon to make.”

In addition, even one-time rollovers are covered. The DOL wants to ensure that when making an IRA rollover recommendation, advisors are considering all relevant factors and setting forth the pros and cons of each option.

Further, it is crucial that advisors document a process to provide rollover advice: “Financial Institutions must document the reasons for a rollover recommendation and provide that documentation to the Retirement Investor.” There must be a “written explanation of the basis to recommend a rollover.”

Start The Process
Advisors need to immediately get up to speed on the options for the multitude of clients and prospects who may be changing jobs or retiring and face a decision on what to do with their 401(k) or other workplace retirement plan.

There are basically three options:

1. Leave the funds in the company plan (or roll to a new employer’s plan)

2. Lump-sum distribution

3. IRA rollover

The DOL is concerned that advisors will recommend rolling over funds to an IRA under their management without making clients aware of other options. The IRA rollover may often be the best option, but advisors need to go through a formal process of evaluating the other options to come up with a recommendation that is in the client’s best interest. Importantly, this process must be documented. The result will be a high-value customized plan for a major financial event in the client’s life.

This “process” is something we have been training advisors on for over 20 years at our 2-Day IRA Workshops. Our next one is coming up July 18-19, 2024 in National Harbor, MD. 401(k) accounts often involve a client’s life savings, and advisors need to know both the benefits and drawbacks of each option in order to explain them to clients.

The best way to approach this process is to first see if there are compelling reasons not to do the IRA rollover, and then see what weight these reasons might carry with the client. The result can be very different for each client based on his or her individual financial and personal circumstances and objectives.

Reasons To Keep Funds In The Company Plan
One compelling reason to leave plan funds in the existing plan (or roll to a new company’s plan) is federal creditor protection under ERISA. ERISA plans offer complete protection in bankruptcy and against non-bankruptcy creditors. Once plan funds are rolled over to IRAs, creditor protection is based on state law. (IRAs do have limited federal protection in bankruptcy.)

401(k)s can offer life insurance as a plan investment and can allow for plan loans. Those cannot be done from IRAs.

An important factor with many clients who are still employed is the ability to delay RMDs (required minimum distributions). Most company plans allow participants to delay RMDs beyond age 73 until retirement through the “still-working” exception. IRAs offer no such exception.

For clients who have not yet reached age 59½ and who need to access their 401(k) funds early, the 10% penalty for early distributions can be avoided at age 55 if they  separate from service at age 55 or later (the earlier of age 50 or 25 years of service for certain public safety employees).

One downside to leaving funds in the 401(k) is a lack of control since the plan’s rules may not allow access to funds when needed, and the plan will not offer as wide an array of investment or estate planning options as IRAs do.

Reasons To Do A Lump-Sum Distribution
The main benefit for doing a lump-sum distribution is to take advantage of the NUA (net unrealized appreciation) tax break. This option is especially attractive to long-term employees who have seen the value of their company stock grow in their 401(k) plans, especially over the last decade. In short, the NUA benefit allows appreciated company stock in the 401(k) to eventually be taxed at more favorable long-term capital gain rates rather than as ordinary income, which is how those funds would be taxed if rolled over to and then withdrawn from an IRA.

This is an area advisors need to learn more about, because once the funds are rolled over to an IRA, the NUA tax deal is lost. The IRA rollover is irrevocable.

The NUA tax break is best when there is highly appreciated company stock within the 401(k). If so, to qualify for the NUA tax break, the stock (and all other plan assets) must be withdrawn in a lump-sum distribution after a qualifying (triggering) event, the most common being separation from service or reaching age 59 ½. The other plan assets can be rolled over to an IRA, but the NUA stock must be transferred to a regular investment (non-IRA) account. Ordinary income tax would be owed at distribution from the plan, but only of the cost of the stock to the plan. When the stock is eventually sold, the NUA (the appreciation) is taxed at long-term capital gains rates resulting in potentially enormous tax savings for the client.

Reasons To Do The IRA Rollover
Generally, if the benefits discussed above are not available or not important to your client, the IRA rollover may be the right move. The key is going through the process of considering all options before making your recommendation.

An IRA rollover allows for more consolidation and control of the funds. There is more flexibility in IRAs, both during lifetime and for estate planning. There are more customized investment options available within IRAs, including alternative investments. RMDs will be easier to navigate with IRAs since the aggregated RMD for all IRA funds can be taken from any single IRA.

QCDs (qualified charitable distributions) are only available from IRAs, not from employer plans. This can be a big benefit for clients (age 70 ½ or older) who normally give to charity and are currently not receiving a tax benefit because (like most people) they take the standard deduction.

Clients can also receive more personal and customized advice and service from their advisors when the funds are in an IRA.

Don’t think of the new DOL rules as a terrible new burden. Instead, think of them as a new opportunity for financial advisors to capitalize on the trillion-dollar IRA rollover market!

Ed Slott, CPA, is a recognized retirement tax expert and author of many retirement focused books. For more information on Ed Slott, Ed Slott’s 2-Day IRA Workshop and Ed Slott’s Elite IRA Advisor Group, please visit