A workaround exists by which the 401(k) can be rolled into an inherited IRA but only by trustee-to- trustee transfer. If the check is made payable to the beneficiary, it is an irrevocable distribution not eligible for rollover.
The more common problem we run into with many plans is they will only allow their beneficiary form to be used. We encounter quite a few clients whose attorneys want to use a customized beneficiary designation. IRA custodians are much more liberal with the use of tailored beneficiaries. In families, where customization is necessary to address differences in the treatment of beneficiaries or facilitate the possibilities of disclaimer planning, this difference between qualified plans and IRAs can be significant.
In less than a thousand words, I have described several differences between how qualified plans and IRAs operate and a few incidents in which money should be moved from one type of account to another. In some cases the differences are minor but in others they would be significant. Some of the movements will be irrelevant to some and high impact to others.
It is obvious to me that an objective viewpoint and analysis of all this would be valuable and could be very valuable. That is worth paying for as is the ability to deal with future issues, especially since as circumstances change, what is best can change and life is full of change.
I haven’t even gotten to anything about portfolio structure and management. Nor have I talked about other financial planning related topics like deciding if an immediate annuity is a good idea, choosing from which accounts to draw money during retirement, tax planning and gifting.
So, when I see a cost analysis that implies there is a problem simply because a client will pay more with an advisor than without, I want to scream. The professionally advised apple is not the same thing as a narrowly advised orange or a non-advised thermos.
I cringe when I hear of advisors that are concerned about justifying their fees. If you are a professional doing real financial planning, this is easy. Now, if you aren’t a professional doing real planning, you may have reason to worry but you can fix that. Be professional and do real planning.
Dan Moisand, CFP, has been featured as one of America’s top independent financial advisors by several publications, is a past president of FPA and a popular speaker on all things related to retirement advice and the profession of financial planning. He practices in Melbourne, Fla. You can reach him at www.moisandfitzgerald.com.