To quote the Beatles, “I get by with a little help from my friends.” Thanks to my financial planner buddies, I was recently reminded of the power of the in-service Rollover.
Before I explain, let me say that this technique is NOT for everyone. As with everything in this blog, ask your financial planner, CPA, Tarot-card-reader, veterinarian, spiritual guru, or other trusted source of money advice prior to making this move.
First, what is an in-service rollover? This is a feature of some (not all!) company-sponsored retirement plans (401k, 403b, 457) that allows employees aged (mostly) 59 ½ and older who are still working for the company to transfer money out of their retirement plan and into a Rollover IRA.
Why would you do this?
Some folks will do it to be able to actively trade with their 401k money; crypto or collectable Hot Wheels or emerging markets currency trading, perhaps.
A more practical reason is to get the 401k money ready for retirement income before you leave your company.
For example, if you’d like to build up cash or a bond ladder to fund the first year or two of withdrawals, you can’t do that within a company-sponsored plan.
Withdrawals from 401k’s, etc., come out of all investments on a pro-rata basis. You can’t specify, “Take the money out of the money market position and leave the stocks alone.” This is a bummer if the stock market is down and you need to take money out of the plan to pay your bills.
Preparing your retirement investments BEFORE retirement, if most of your money is in your company-sponsored plan, could make an in-service rollover an appealing tool for you.
Some rules and considerations:
- Not all plans allow in-service rollovers.
- Usually the minimum age is 59.5, but some plans allow for earlier rollovers.
- Even if the plan allows for the in-service rollover, not all sources of money (i.e., employer match) may be eligible to move before employment is terminated.
As you prepare to enter retirement, there are a million questions. You are welcome; I just gave you another one!
