Many individual Minnesota investors that I meet don’t think very highly of their company 401(k) retirement plan menu. After I review a copy of their company 401(k) retirement plan menu of options, I often share their opinion.
There is a way to escape your company 401(k) retirement plan account. The maneuver is called an in-service distribution. Check the Summary Plan Description of your company 401(k) retirement plan documents in order to find out if this option is available to you.
Many employees age 59 and a half or older can roll over from their current company 401(k) retirement plan account into an IRA. This rollover can be done while they are still working at the company. It can also be done while company and personal contributions are still being made into the company 401(k) retirement plan account.
The law allows an in-service distribution to take plan without paying any current income taxes.
The main reason to consider an in-service distribution is lower costs. Your company 401(k) retirement plan menu is likely full of expensive mutual funds. An IRA account would provide access to several lower cost investment options.
Another reason to consider this move is more options. An IRA account would allow you to investment in any stock or bond mutual fund available. It also would allow you to consider exchange traded funds.
The last reason to consider an in-service distribution is to gain access to a professional investment advisor. Some company 401(k) retirement plans lock out independent third-party investment advisors. Several online IRA custodians welcome third-party investment advisors and their in-service distribution clients.
The in-service distribution option is not for every individual company 401(k) retirement plan participant. Consult your tax advisor if you are thinking seriously about this option.
I have seen an in-service distribution work very well for the right kind of frustrated individual company 401(k) retirement plan participant.
Ric Lager
Lager & Company, Inc.
