A little known fact: if you are over the age of 59 ½, the IRS allows you to rollover your 401k to an IRA through what is called an in-service withdrawal. Most plans allow for in-service withdrawals in cases of hardship, but many also offer non-hardship, in-service withdrawals to employees over age 59 ½.
Take control of your 401(k)
In-service withdrawals can be a powerful way to take control of your retirement assets. By rolling a portion of your 401(k) over to an IRA through an in-service withdrawal you may have more investment options and greater opportunity to control and manage what could be your largest asset. For example, if you don’t like the investment options in your plan or if you would like to have additional options that are not available in your plan, an in-service withdrawal to an IRA may make those options available to you.
The best way to complete an in-service withdrawal is by way of a direct trustee-to-trustee transfer. This preserves the tax deferred status of your retirement plan, and avoids any income tax withholding. Normally, this is set up through your employer or plan administrator. Once funds are transferred to an IRA, they are free to be invested as you would with any other IRA asset.
Although the IRS allows this strategy, your specific retirement plan may not. To find out, ask for a copy of your 401(k) plan’s Summary Plan Description. The Summary Plan Description or Plan Document spells out the specific rules unique to your 401(k). Depending on the plan, not all assets may be available. Some plans only allow for partial withdrawals. Others may limit you only to the vested portion of your account balance or could require the signature and consent of a spouse. You will need to consult your Summary Plan Description or plan sponsor to get the specifics on your 401(k).
No strategy is without its downside. 401(k) plans offer unique benefits like the ability to take loans, protection from creditors and the ability to exercise “NUA treatment” of in-kind distributions of employer stock. But for many pre-retirees, an in-service withdrawal can be an effective way to take control of your retirement assets even before you retire.
Required Disclosure: As individual situations will vary please note that this information is not intended to be a substitute for specific individualized tax or financial advice. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.