As expressed in the May/June 2012 issue of “Eye on Money,” some 401(k) plans have high fees and expenses. In addition, the investment choices available in these retirement plans are sometimes limited. As a result of TIPRA (Tax Increase Prevention Reconciliation Act), tax laws now permit in-service distributions from your retirement plan while you continue working. This money can be distributed into a self-directed IRA Rollover account.
Not all company-sponsored retirement plans offer In-Service 401(k) withdrawals/rollovers. To find out if your company-sponsored retirement plan offers In-Service 401(k) rollovers, contact your plan administrator or ask for a copy of the Summary Plan Document. There may be some additional requirements such as age (typically after 59 ½) and eligibility (employee must have been a participant in the plan for five years or the funds have to have been in the plan for two years).
In order not to incur a tax liability, the rollover must go directly to your custodian, i.e., Charles Schwab or TD Ameritrade and deposited into your IRA Rollover account. This will enable you to continue to benefit from the tax-deferred growth without an immediate tax liability or penalty. You can maintain your contributions to your 401(k) and receive any employer matching.
Below are some reasons to consider a 401(k) retirement plan in-service rollover to a self-directed IRA Rollover account.
• Flexibility of investment choices
• Diversification of concentrated positions
• Simplify estate planning
• Consolidate retirement accounts
• Receive professional guidance and have your assets managed by ABFS
Another reason to consider an In-Service 401(k) withdrawal is that you can sometimes roll 401(k) money directly into a Roth IRA where future earnings will be tax free.
Please don’t hesitate to give your ABFS advisor a call (425-451-0499) to discuss this investment strategy.