In-Service Rollover From 401(k) Plans

In-Service Rollover From 401(k) Plans

| August 24, 2023

Most people understand the financial value of putting money into a 401(k) plan. But what about the value of 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 may also be available on a 403(b)s, 457 plans and pensions. The two requirements are that your company retirement plan allows it, and in most cases, you must be at least 59 ½.

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 mutual funds or target date funds, designed to get more conservative as an employee gets older. There may be very few options to invest in for small-caps, mid-caps, or international.

Most 401(k) plans only offer mutual funds, which have internal fees averaging well over 1.5% when you include trading costs. And studies show that the overwhelming majority of mutual fund managers can’t outperform an unmanaged ETF or index, despite all of the extra fees.

Moving a 401(k) to an IRA through an In-Service Rollover can result in more options 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 employees more control over their investments, free from the restrictions of your employer-sponsored plan.

In addition, most IRAs allow non-spouse beneficiaries to stretch an inherited IRA 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 an In-Service Rollover to roll their 401(k) over into an IRA. This allows our clients to use low-fee ETFs and take advantage of our 3 buy/sell indicators to reduce the risk of the portfolio.

Disclosure Advisory services are provided by Apollon Wealth Management, LLC (“Apollon”), an investment adviser registered with the Securities and Exchange Commission. Piershale Financial Group is a DBA of Apollon. The information in this message is for the intended recipient[s] only. Please visit our website for important disclosures.