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Is your adviser encouraging you to do an IRA rollover? Make sure they’re following this new rule

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IRA rollovers are common, whether they’re from an old 401(k) or just one account to another, but a newly implemented Department of Labor rule says financial advisers suggesting the move have some explaining to do. 

Retirement Tip of the Week: If you work with a financial adviser and they are suggesting you do an IRA rollover, a rule made enforceable July 1 says the reason must be in writing. Make sure you get that document, for your sake as well as your adviser’s. 

The key components of the rule are to review in depth then explain how this rollover best serves the client. Many financial advisers may already be doing this for their clients if they are fiduciaries, which means they are required to work in their clients’ best interests ahead of their own financial gain, but the DOL now requires it. 

The rule, known as the prohibited transaction exemption 2020-02,was passed in December 2020 and went into effect in 2021, though enforcement did not begin until February 2022. Under the rule, a recommendation for a rollover from an employer-sponsored plan to an IRA is considered a prohibited transaction if the move is not in the client’s best interest and the adviser receives compensation for it.

See: Watch out — this one mistake could cost you thousands when you rollover your 401(k) to an IRA

The mission behind this new rule is to protect investors from rolling money over from one account to another for the wrong reasons, such as a financial adviser’s monetary gain for the transfer. An extensive review, and explanation of the recommendation, will clearly outline to investors why a rollover is in their best interest – and keeps advisers and clients on the same page. 

“Rollover recommendations are a primary concern of the Department, as financial services providers often have a strong economic incentive to recommend that retirement investors roll assets out of ERISA-protected plans into one of their institution’s IRAs,” the DOL said in an April 2021 breakdown of the rule. “The decision to roll over assets from a plan to an IRA is often the single most important financial decision a plan participant makes, involving a lifetime of retirement savings.” 

Have a question about your own retirement concerns? Check out MarketWatch’s column “Help Me Retire”

For 401(k) to IRA rollovers, advisers will have to consider the alternatives to an IRA (such as leaving the money in the workplace plan), a cost comparison for both accounts, if the employer pays for any of the administrative expenses and the different types of investments, or services, provided in either account, the DOL said. Advisers will have to do extensive data gathering, including from the client as well as alternative sources, to clearly explain why this move is a good one. 

For rollovers from one IRA to another, or from a commission-based account to a fee-based one, the recommendation letter must explain the services to be provided from the new account and the long-term costs of the move, as well as “economically significant” investment features, the agency said. 

The rule applies to any registered investment advisers who offer fiduciary advice to retirement investors.

About $534 billion was rolled over from employer-sponsored plans to IRAs in 2018, according to Internal Revenue Service data cited in the Investment Company’s 2021 Fact Book. Comparatively, $70 billion was contributed to these accounts that year. 

Rollovers from an old workplace plan to an IRA can make a lot of sense. If there’s not a lot of money in the 401(k), but the individual no longer works at that job, she can roll the assets into an IRA and then continue to contribute to it so that it grows more (when people leave their jobs, they can’t keep contributing to their old 401(k) plans).  

Want more actionable tips for your retirement savings journey? Read MarketWatch’s “Retirement Hacks” column

Some people may choose to do a rollover because the fees are lower at the new account than the old one. Another reason: investment options. Investors may find they have better choices in an IRA, or a new IRA if they already have one, than their 401(k) or old account, though determining that will take a bit more research and may also depend on the investor’s needs. 

In other scenarios, keeping money in a workplace plan may be a better choice, especially for workers still at the companies offering the 401(k) plan. Aside from potentially lower fees and superior investment choices, those with active 401(k) plans may be entitled to employer matches to their contributions. These workplace plans come with other benefits, such as more stringent protection against creditors. Former employees will have to check with their companies’ rules about whether or not they can remain in the plan after they’ve left. 

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BofA Securities maintains Amazon.com at ‘buy’ with a price target of $154.00

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Six people in critical condition, one still missing after Paris blast – prosecutor

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© Reuters. French firefighters and rescue forces work after several buildings on fire following a gas explosion in the fifth arrondissement of Paris, France, June 21, 2023. REUTERS/Gonzalo Fuentes

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PARIS (Reuters) – Six people remained in a critical condition and one person was believed still missing on Thursday, one day after a blast ripped through a street near Paris’ historic Latin Quarter, the city’s public prosecution office said. “These figures may still change,” prosecutor Maylis De Roeck told Reuters in a text message, adding that around 50 people had been injured in the blast, which set buildings ablaze and caused the front of one to collapse onto the street. Of two people initially believed missing, one has been found in hospital and is being taken care of, the prosecutor said, adding: “Searches are ongoing to find the second person.” Authorities have not yet said what caused the explosion, which witnesses said had followed a strong smell of gas at the site. The explosion led to scenes of chaos and destruction in the historic Rue Saint Jacques, which runs from the Notre-Dame de Paris Cathedral to the Sorbonne University, just as people were heading home from work. It also destroyed the facade of a building housing the Paris American Academy design school popular with foreign students. Florence Berthout, mayor of the Paris district where the blast occurred, said 12 students who should have been in the academy’s classrooms at the time had fortunately gone to visit an exhibition with their teacher.
“Otherwise the (death toll) could have been absolutely horrific,” Berthout told BFM TV. She said three children who had been passing by at the time were among the injured, although their lives were not in danger.

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4 big analyst cuts: Alcoa & DigitalOcean shares drop on downgrades

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Here is your Pro Recap of the biggest analyst cuts you may have missed since yesterday: downgrades at Alcoa, DigitalOcean, Teleflex, and Xcel Energy.InvestingPro subscribers got this news in rapid fire. Never be left in the dust again.Alcoa stock drops on Morgan Stanley downgrade Alcoa (NYSE:) shares fell more than 3% pre-market today after Morgan Stanley downgraded the company to Underweight from Equalweight and cut its price target to $33.00 from $43.00, as reported in real time on InvestingPro.The firm sees a significant decline in consensus estimates, and as negative earnings revisions materialize, it believes the stock will face downward pressure and underperform.The analyst’s estimates for EBITDA in Q2, 2023, and 2024 are substantially lower than the consensus. The stock is currently trading above its historical average. The firm said its downward revisions in earnings estimates and price target are attributed to the company’s high operating leverage to aluminum prices.DigitalOcean stock plunges on downgradePiper Sandler downgraded DigitalOcean (NYSE:) to Underweight from Neutral with a price target of $35.00. As a result, shares plunged more than 5% pre-market today.The company reported its last month, with revenue beating the consensus estimate, while EPS coming in worse than expected. Furthermore, the company provided a strong outlook, which was above the Street estimates.2 more downgradesTeleflex (NYSE:) shares fell more than 3% yesterday after Needham downgraded the company to Hold from Buy, noting that UroLift expectations may still be too high.According to Needham, their checks indicate that urologists are reducing their use of UroLift due to its retreatment rates, reimbursement cuts, and increasing use of competing procedures. This is also supported by their Google Trends data analysis, which indicates decreasing search interest in UroLift.BMO Capital downgraded Xcel Energy (NASDAQ:) to Market Perform from Outperform and cut its price target to $64.00 from $69.00 to reflect the lower-than-expected terms of the company’s regulatory settlement in Colorado.Amid whipsaw markets and a slew of critical headlines, seize on the right timing to protect your profits: Always be the first to know with InvestingPro.Start your free 7-day trial now.

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