Tell us if this sounds familiar. You’ve been contributing to your 401k (or 403b) for years and have built up a nice nest egg. The only problem is you’re not sure if you’ve picked the right investments from those available, or if you have the proper allocation to each fund. Furthermore, you have no idea whether the investment options in the plan are any good in the first place. Maybe you’ve meant to research these things in your free time, but let’s be honest, that’s pretty far down the to-do list. How are we doing?
Several clients have expressed concern recently that their 401k account isn’t getting the attention it deserves. That’s easy to understand since for many people a company retirement plan is a significant chunk of their net worth. Since these plans are largely self-directed, employees must act as their own investment advisor. So you want in on a little secret? You might be able to rescue your 401k money. Here’s how.
We’re helping more and more clients do what’s called an in-service distribution from their 401k account. This is an easy process that allows you to withdraw your current account balance and transfer it to an IRA rollover, without any tax implications or affecting your eligibility to continue contributing to your 401k and earning your employer match. So why should you be interested?
401k plans typically have several downfalls:
• a limited number of investment options which may or may not be any good
• often these are from the same fund family (all Fidelity funds, for example)
• you often can’t own individual stocks (outside of your company stock) or bonds in these plans
• employees must self-direct their 401k monies, often without the input of a professional
Here’s why you should consider an in-service distribution (if your 401k plan allows and you are eligible):
• gain professional management with a consistent review process and cohesive investment strategy
• access to a much wider range of investment options, including individual securities
• no tax consequences assuming the money is directly rolled over to an IRA
• allows you to keep contributing to your 401k and earn the employer match
• greater flexibility with an IRA in naming a beneficiary
Every 401k (or 403b) plan is unique. Roughly 75% of these plans allow for in-service distributions/withdrawals/rollovers for those who are 59.5 or older. A smaller percentage allow them for those under 59.5. If you or someone you know has a 401k account that isn’t getting the attention it deserves, ask us how to get the ball rolling on an in-service distribution. The process is simple and the peace of mind of having a professional looking after your money is worth it.