Key Takeaways
- PTE 2020-02 provides protections when an advisor recommends a rollover they’ll be compensated to manage, including a written explanation of why the recommendation is in your best interest.
- Both leaving money in a former employer’s plan and rolling it into an IRA have trade-offs, and neither is automatically the right choice.
- A rollover doesn’t guarantee better returns, but it can offer closer oversight, easier implementation, and better coordination with your broader financial plan.
If you’re thinking about rolling an old 401(k) into an IRA, I want you to know something before you decide anything.
There’s a rule that protects you in this exact moment — and it exists because handing your retirement savings to someone else to manage is a big deal.
When I recommend a rollover into an account I’ll manage, I may start earning an ongoing fee on that money. That creates a potential conflict of interest, and it’s something you deserve to understand as you weigh your options.
What the Rule Actually Requires
When an advisor recommends that you move retirement assets into an account they’ll manage, the recommendation may fall under Department of Labor fiduciary requirements.
One important protection is the Prohibited Transaction Exemption (PTE) 2020-02. When an advisor and their firm are relying on this exemption for a rollover recommendation that will result in compensation, they must meet certain conditions. Among them is documenting and providing you with the specific reasons the rollover recommendation is in your best interest.
In plain English: You deserve more than, “I think you should roll this over.”
You deserve to understand why the recommendation makes sense for you, what you could gain, what you could give up, and what alternatives you have.
I want my clients to have that information regardless, but I also think it can help to know that these protections exist.
Did you see a headline about this rule?
You may have seen headlines about a broader Department of Labor rule that was struck down by federal courts in 2026. That was a different, more expansive rule.
The broader 2024 rule was separate from PTE 2020-02. The written rollover documentation requirement under PTE 2020-02 remains in place.
The Case for Staying Put vs. Rolling Over
Whether you leave your money in your former employer’s plan or roll it over, there are trade-offs on both sides. Neither choice is automatically right, and your advisor should be honest about that.
Why might you leave your 401(k) where it is?
Leaving your money in your former employer’s plan can offer access to low-cost institutional funds you wouldn’t get elsewhere, and some plans may include options, like a stable value fund, that you won’t usually find outside of employer plans.
One of the biggest reasons to consider leaving your money in a 401(k) is if a backdoor Roth strategy may be part of your financial plan. Rolling pre-tax 401(k) assets into a traditional IRA can trigger complications under the IRS pro-rata rule.
When calculating the taxable portion of a Roth conversion, the IRS looks at your traditional, SEP, and SIMPLE IRA balances together, so you generally can’t isolate only the after-tax dollars you want to convert.
A rollover decision today can affect your ability to execute a backdoor Roth strategy efficiently in the future. That’s something we’d want to consider before moving the money.
Your former employer’s plan may also have its own rules, costs, and investment choices to consider.
Why might you roll your 401(k) into an IRA?
An account left in a former employer’s plan can be harder for an outside advisor to incorporate into your ongoing planning. I don’t have the same day-to-day visibility or ability to implement changes that I have with an account I directly manage. You may need to track down statements, work with the plan administrator, and ultimately carry out recommendations yourself.
Rolling an old 401(k) into an IRA does not guarantee better returns. And if handing someone a significant portion of your retirement savings makes you nervous, I understand that. It’s a big decision.
But there can be real value in bringing that money into the bigger picture. You gain closer oversight and easier implementation when your needs change.
It also allows me to coordinate those investments more closely with the rest of your financial plan, rather than looking at that account in isolation.
What About a Position You Don’t Want to Sell?
There’s another situation that can come up when we’re talking about consolidating accounts, although it’s a little different from rolling over a 401(k).
If you have a position in a taxable brokerage account that has grown substantially and carries a large unrealized gain, selling it may create a significant tax bill. In that situation, you’re weighing the tax cost of selling today against the potential benefits of repositioning that money.
Sometimes, the math tells us to wait — and that can be a perfectly reasonable decision.
If a change does make sense, it doesn’t necessarily have to happen all at once. Depending on your circumstances, we might consider spreading sales across multiple tax years, using available losses to offset gains, or timing sales around lower-income years.
Naturally, we’d work through your specific numbers before selling anything.
This Is Your Call
Whatever you decide, it’s yours to make. My job is to give you the full picture, not to steer you toward the option that happens to be better for me.
If you have questions about leaving a 401(k) alone, rolling it into an IRA, or what to do with appreciated investments elsewhere in your portfolio, I’d love to talk through them at our next meeting. You never have to figure it out on your own.
Frequently Asked Questions (FAQs)
Q: Does this rule apply only to 401(k)s, or to other retirement accounts, too?
A: It applies to rollover recommendations from most employer plans, including 403(b)s and TSPs alongside 401(k)s.
Q: Will I have to sign anything to receive this disclosure?
A: No. I’ll give it to you in writing before we move forward. It’s only designed to inform your decision, not lock you into any one option.
Q: If I’m in my mid-50s, does moving to an IRA change when I can access the money penalty-free?
A: It can. Using the Rule of 55, you can withdraw from your previous 401(k) penalty-free if you leave your job in the year you turn 55 (or later). But in an IRA, the penalty-free age is 59 ½.
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.
