What is an in-service 401(k) rollover? - Tucson Local Media: Business

What is an in-service 401(k) rollover?

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Posted: Wednesday, September 28, 2011 3:00 am

As triple digit moves in the stock market have become the “new normal,” the ride to retirement just got a little bumpier. For those of us who suffer from motion sickness, it’s been a little tough as of late!

Many people have the majority of their investments tied up in their 401(k), which can be even more unnerving. How many times a day do you pull up your 401(k) statement online lately? Be honest.

And, if you are on the final approach to retirement or as they say, “in the red zone,” the last few weeks have been torture to be sure.

But wait. There is a little known and seldom used, “get out of jail free card,” known as the in-service 401(k) rollover. Most people think they have to wait until they retire to access their 401(k), but many company 401(k)’s allow a participant to rollover part of their 401(k) balance to a self-directed IRA without separating from service; many allow this as early as age 55.

Why would you want to do this? You may not like the limited investment choices offered in your 401(k) or you may want professional advice regarding what may very well be the majority of your retirement nest egg. 

But, perhaps most importantly as there are very few people these days that have a pension, you may be able to create an additional source of guaranteed retirement income by utilizing an investment known as a variable annuity with a lifetime income guarantee within your self-directed IRA. 

There have been several studies completed recently that indicate people who have another source of guaranteed retirement income in addition to Social Security have a better chance of successfully navigating through retirement. 

In fact, just recently the U.S. Government Accountability Office issued a substantial report on the matter.

So, if you are nearing retirement and nervous about your 401(k), contact your benefits department and ask them if your 401(k) plan allows in-service, non-hardship rollovers.  Or, you can ask them for a copy of your 401(k)’s Summary Plan Description (SPD). If your plan allows for in-service, non-hardship rollovers and you think you’re interested in doing it, don’t go it alone. Consult with a tax and financial advisor to learn all the pros and cons before you make a decision. In the meantime, buckle your seat belt and keep the Dramamine handy!

Chad M. Winn is a financial advisor for Wells Fargo. He can be reached at 584-3017 or by emailing chad.winn@wfadvisors.com.

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