Is it possible – or even prudent – to roll over funds from your 401(k) plan into self-directed IRAs? If you’re at least age 59½, the answer could be yes.
Rollovers are not an option most 401k plans promote, and for good reason: the company administering your plan wishes to keep the funds just where they are, collecting fees. But you can find plans that allow for rollovers, also known as in-service distributions.
How does it work?
With an in-service distribution you can transfer your 401k funds into another tax-deferred retirement account like a Self-Directed IRA or Solo 401k. You’ll incur no tax penalty for this transfer, even if you’re still working for the company (that is, “in service”) that is currently administering your 401k plan.
Forbes published a great article outlining the benefits and risks of in-service distributions. The magazine emphasizes that in many cases you won’t have an easy time finding the provision in your 401k allowing you to roll over funds, but such options do exist. In some plans, it’s reserved for age 59½, but in others anyone can request an in-service distribution regardless of age!
Why roll over?
There are several valid reasons to roll some or all of your funds from a 401k using tax-deferred in-service distribution into self-directed plan:
- Your employer’s plan has poor or limited investment options
- Your plan charges high investment fees
- You’re in the market for individual stocks
- You want a different money manager working with your funds
- A ROTH IRA is in your plans
- You want to leave money as an inherited IRA to non-spousal heirs
- You want to have more control over your account
- It’s great for purchasing investment real estate!
How to learn more
If you know your 401k administrators, drop them an email or make a phone call. Don’t know who the administrator is? Your company’s HR representative probably does; and if he or she doesn’t know at least the rep knows where to look for answers.
In-service rollovers let you diversify your retirement savings, and give you an entry into real estate or other investments that can net you additional cash beyond the boundaries of the typical 401k.
You’ll have to invest some time researching your corporate plan to see how and if you qualify to roll over funds. But if you do qualify, consider taking the next step – an in-service distribution could give a much-needed boost to the available investment options.