In-Service Rollover from 401(k) Plans

In-Service Rollover from 401(k) Plans

| June 01, 2019

Most people understand what it means to put money into a 401(k) plan. But what about taking your money out? Did you know there’s a law that allows you to potentially roll out part or all of the money in your company 401(k) plan while you are still employed and contributing to the plan?

It’s called an In-Service Rollover, and it’s one of the most powerful options available to employees by the IRS.  And it doesn’t just apply to 401(k)s, it’s also available on 403(b)s, 457 plans and pensions. The 2 requirements are that your company retirement plan has to allow it and in most cases, you must be at least 59 ½ to do it. 

The two major advantages of an In-service Rollover are control and diversification.  Many employer-sponsored plans offer limited investment options in their menu of choices.  The menu is often dominated by many Large-Cap options or Life-Style asset allocation models designed to get more conservative as an employee reaches retirement.  There may be very few options to invest into for Small-Caps, Mid-Caps, or International.

Most 401k plans only offer mutual funds, which can be very expensive, with all kinds of internal fees.  Also, studies show that the overwhelming majority of mutual fund managers can’t outperform an unmanaged ETF or index, despite all of the extra fees.

An In-Service Rollover to an IRA in contrast, can offer much more flexibility for the employee, as most IRAs typically provide a wide range of investment choices, across virtually all asset classes, including low fee ETFs, as well as individual stocks and bonds.  This gives the employee more control over their investments, free from the restrictions your employer-sponsored plan can impose.

In addition, most IRAs allow non-spouse beneficiaries to stretch an Inherited IRA over their lifetimes and this option is not always available on company plans without a lot of extra steps. This may limit distribution choices for your beneficiaries and subject them to paying much higher taxes on distributions from the 401(k).

We’ve helped many clients over the years take advantage of this option to take their 401(k) and roll it to an IRA where we can manage it using our Advance & Preserve tactical process.  We use low-fee ETFs to keep costs low and use our 3 buy/sell indicators to reduce the risk of the portfolio from a market crash. It’s been our experience that very few people are aware of this option and are delighted when we inform them. 



The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.