Since the creation of 401k plans in 1978, they have become the most popular type of retirement plan in America. Nearly 60 million Americans depend on the money they save within their 401k plan to help sustain them during retirement years.
There are many advantages to participating in your employer-sponsored plan… with convenience, flexibility, and ease of operation ranking among the top. However, the biggest draw quite possibly is the “free” money many employers offer by way of matching contributions. When the employer contributes to your 401k plan on your behalf, it is an amazing benefit that you do not want to leave lying on the table.
However, even with all its advantages, the 401k plan has some drawbacks that may be worth noting. The investment structure can be limiting and the fund options within the plan can be mediocre, at best. Upon termination or retirement, most employees opt to rollover their 401k’s into an IRA. Doing so offers greater diversification and more control over these dollars. What many people do not realize is that you may not have to wait until you leave employment to move your 401k.
Some 401k plans offer what is called an in-service withdrawal. Simply put, it is the distribution an employee takes while they are still employed. Every plan has its own rules, but if outlined parameters are met, the employee may be able to move the dollars accumulated inside their 401k plan into an outside IRA. This permits employees to invest their money on their own time and in the way that is most appropriate for their individual circumstances.
Doing an in-service withdrawal does not take away your ability to continue to participate in your 401k plan. You can rollover the existing dollars and then continue to make contributions and receive your employer match as long as you are still employed.
At Asset Strategies, we frequently assist our clients with in-service withdrawals and then invest their account in a way that is in alignment with their current financial needs, their future financial goals, and their risk tolerance. If the plan provisions allow in-service withdrawals and the client is at least 59 ½, this action continues to defer taxes and avoids the 10% early withdrawal penalty.
Ask about in-service withdrawals today and how you can get those dollars working even harder for you.