Joe Anderson, CFP® and Alan Clopine, CPA discuss why the father of the 401(k) regrets creating it. Plus, the worst mistakes you can make with your IRA and 401(k). Original publish date January 14, 2017 (hour 1). Note that content may be outdated as rules and regulations have changed.

00:00 - Intro

01:46 “[For today’s topics,] I’ve got ten important considerations for 401(k) rollovers, and Ed Slott’s three fatal IRA (individual retirement account) errors.”

02:59 “Ted Benna, in case you don’t know, is known as the father of the 401(k) and we was a benefits consultant with Johnson companies, and he was among one of the first to come up with the notion that American workers should set aside their own pay pre-tax for retirement.”

04:02 “He and other early proponents dislike what the 401(k) has spawned. The tool was never meant to serve as the main means by which workers save for retirement, but that’s precisely what it’s become – it’s increasing the financial risk for workers along the way.”

08:25 “The other thing he doesn’t like about the 401(k) is he says ‘I helped open the door for Wall Street to make even more money than they were already making. That is the one thing I do regret.’”

11:36 “A majority of retirees rolled over their 401(k) to an IRA at retirement.”

14:29 “Let’s say you go back to an old company, you could roll all of your 401(k) into that new 401(k), that avoids the required distribution until you’re retired.”

20:03 “When you think of an appropriate globally-diversified portfolio with a rebalancing strategy, a rebalancing strategy simply means that whatever asset class you have that’s done really well – you shave some of those profits off…and buy an asset class that hasn’t done as well – you’re constantly selling higher and buying lower by discipline...you take the emotion out of it.”

22:57 “The true value-add of an advisor is to take a look at what the strategy is, what their plan is and coming up with the tax alpha if you will, because if you can reduce the overall tax liability of the income that you’re trying to produce, that’s more money – it’s a rate of return. If you look at rebalancing when markets go up and down or sideways to keep that risk parameter based on your goals – that’s huge.”

29:24 “Here’s another one (mistake) that’s irreversible. This is when you have a non-spouse rollover…let’s say you inherit an IRA from your father or mother and you roll it over into your own IRA…you may not realize this but it’s a prohibited transaction. That’s treated as a full distribution.”