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No free lunches or free rollovers

By Sheyna Steiner ·
Monday, January 27, 2014
Posted: 4 pm ET

Most people get a few options when leaving a job, at least with respect to their retirement account. The money could move to a new employer's plan; it could stay with the former employer; or maybe a rollover IRA may be the best option.

When deciding which option is best, investors must pay attention to their own situation and shouldn't be swayed by advertising, according to the Financial Industry Regulatory Authority, or FINRA. FINRA issued an investor alert last week, warning investors to beware of IRA rollover pitches featuring the words "free" or "no fee." Even if actually moving the account to the new company is without cost, some fees are inevitable: for instance, account maintenance and investment management expenses.

FINRA included more tips in the alert, including warnings against conflicts of interest. Financial professionals may recommend choices that are in their best interest rather than that of the investor. Some investors, such as those with large holdings of company stock in their employer-sponsored plan, may benefit from individualized advice about the net unrealized appreciation rules which allow investors to defer taxes on the appreciation of company stock.

In reality, many people considering IRA rollovers could benefit from unbiased advice. There are many ways to go wrong.

For instance, with an indirect rollover a participant has a check made out to himself which he then deposits into an IRA within 60 days. If the funds aren't back in a qualified account by that deadline, a whopper of a tax bill could loom in the future.

As with everything related to taxes and investing, what you don't know can hurt you. Sales people who stand to benefit from your ignorance may not be very forthcoming with the facts.

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Follow me on Twitter: @sheynasteiner.

Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.

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