Do I need a fiduciary for my 401(k) rollover?
You do not technically need a fiduciary advisor to do a 401(k) rollover, but you almost always want one. A rollover is one of the highest-stakes single moves in a typical financial life. The choice affects fund expense ratios, fee transparency, creditor protection, partial Roth conversions, and access to "in-service" withdrawals later. A fee-only fiduciary will look at your 401(k) and your outside picture and tell you whether the rollover is actually a good idea. Sometimes it is not. Many big 401(k) plans offer institutional-class index funds with expense ratios under 0.05%, which is hard to beat in an IRA. A non-fiduciary "rollover specialist," on the other hand, gets paid more when the money moves to an IRA they manage. The Department of Labor's PTE 2020-02 rule now forces written disclosure of those conflicts. The disclosure helps. A real fiduciary helps more.
Why rollovers are conflict-prone
Most "rollover specialists" earn a commission, an AUM fee, or a placement bonus when assets land in an IRA at their firm. The math is simple: $500,000 staying at a 401(k) earns the broker nothing. $500,000 in a rollover IRA at 1% AUM earns them $5,000 a year, every year. The DOL has been tightening this for a decade, and now requires firms to document why the rollover is in your best interest before they recommend it.
When a rollover is the right call
- The 401(k) plan has high-cost funds with expense ratios over 0.50%.
- The plan has limited fund choices and you want a different mix.
- You want the flexibility to do Roth conversions over time.
- You are consolidating multiple old 401(k)s into one IRA.
When it is not
- The 401(k) has institutional-class index funds at near-zero cost.
- You may need creditor protection that ERISA gives you in the 401(k).
- You are still working and want access to an "in-service" loan.
- You expect to use the IRS Rule of 55 for early access.
How a fee-only fiduciary helps
A fee-only fiduciary will compare your 401(k) line by line against an IRA equivalent, factor in your tax picture, and give you the honest answer in writing. Sometimes the honest answer is "leave it alone." That kind of advice is hard to find from anyone who only gets paid if you move the money.
What to bring to the meeting
Pull your 401(k) statement, the plan's fund lineup with expense ratios, and your most recent tax return. With those three documents, a fee-only advisor can model the rollover decision in about an hour.