Treasury, IRS Propose Streamlining Rollovers From 401(ks) to IRAs 

Sit. Stay. Now rollover. Good boy!

Proposed guidance from the Treasury Department and the IRS is aiming to simplify the rollover process between retirement plans and individual retirement accounts. Instead of participants carrying much of the administrative burden, the new rules would have recordkeepers shoulder more of the work and facilitate electronic asset transfers. Direct rollovers are already possible, but the proposal would create standardized forms and procedures for financial institutions to coordinate transfers. If approved, the change could save clients potentially dozens of hours of time when rolling over retirement accounts. 

“Anything they could do to help would be great because right now, it’s a hellish nightmare,” said Robert Persichitte, an advisor with Delagify Financial. He added that his worst experiences with 401(k) rollovers have involved weeks of phone calls, faxes and even snail mail.

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Those frustrations aren’t unusual. In a 2024 survey from the Government Accountability Office, 25% of participants who had recently completed a plan-to-plan rollover said there were too many steps, while 26% said the process took too much time or effort. Another 20% said their old and new plans did not work together to process the rollover request.

Today, when someone rolls over their 401(k) assets to an IRA, the process typically looks somewhat like this:

• A participant contacts the receiving IRA provider, then their old recordkeeper, and fills out documents and verification forms for both. The old plan may send a check made payable to the new institution to the participant, who then has to forward it to the IRA. And that’s if everything goes smoothly.

Under the proposed guidance:

• A participant requests a rollover through the receiving institution, which communicates directly with the old recordkeeper. The institutions verify the necessary information and transfer the money electronically. No checks required. Bing, bang, boom. You’re in, you’re out. 

A rollover can be easy with major custodians like Fidelity, Vanguard or Empower, said Daniel Kopp, founder of Wise Stewardship Financial Planning. However, other custodians can make it extremely painful, and he views it as an asset-retention strategy. “If these firms make it difficult, many clients, including some that I have worked with, just give up and leave assets there,” Kopp told Retirement Upside.

Only If You Want To. The catch is that the proposed standardized process is optional. The Treasury and the IRS are not requiring electronic transfers because doing so would force many institutions to make potentially expensive changes to their recordkeeping systems, said Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute. “This helps make the process more efficient, but there are still improvements that would make the process even more efficient,” he told Retirement Upside.