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How To Rollover Your 401(k), While Still Working

401(k) RolloverHere’s the problem: You want to rollover your 401(k) to get more investment options inside an IRA.

You are not happy with your 401(k) investment options, or with the ease with which you can manage the funds in your 401(k).

You may even want to work with an advisor to help you manage your savings inside your IRA, if only you could rollover your 401(k) funds into the IRA. The only problem is you are still employed and you don’t know if your 401(k) plan will let you rollover your funds while you are still working for them.

Now you may not be ready to retire, but you can see that in about 1 to 5 years you will be ready to quit working at your current employer. And you want to start planning for retirement now so you can be fully prepared. To do this, you want to be able to continue tax deferral on your 401(k) funds (by rolling them into an IRA) and gain access to many more investment options that you will have available inside an IRA.

You may be able to do this. And I’ll show you how. But first, let me tell you how the 401(k) rollover rules work so it all makes good sense.

Your 401(k) Plan Must Follow The Law

There are certain rules in place that your 401(k) plan must follow when it comes to allowing you to rollover your 401(k) into an IRA, while you are still working with that employer. These are the 3 types of contributions that are legally allowable for you to rollover into an IRA.

  1. Employer contributions
  2. Employee after-tax contributions (not Roth contributions)
  3. Employee contributions if older than 59 ½

So your 401(k) can allow you to rollover these 3 types of contributions while you are still working for that employer.

Employer contributions is easy to understand. That’s what your employer contributed into your plan through either matching or profit sharing.

Employee after-tax contributions (not Roth contributions) are different from Roth contributions. Yes, Roth contributions are after-tax, but their earnings are not taxed either. But a non-Roth after-tax contribution will have its earnings taxed later. Not all 401(k) plans allow these types of contributions.

Now we get to the big one: Employee contributions. If you are older than 59 ½ your plan may allow you to withdraw your contributions. This will probably be the majority of your 401(k).

If you are under age 59 ½ then don’t even bother asking if you can rollover your contributions into an IRA. Your plan provider is not legally able to allow this. It may allow you to rollover the contributions your employer made, even if you are under age 59 ½. But it’s not going to allow the contributions that you made.

So those are the 3 types of contributions that are allowed to be rolled over into an IRA while you are still working for your employer. But there’s one more catch…

Your 401(k) Plan Can Choose To Be More Restrictive Than The Law

Just because the law allows your 401(k) plan to let you rollover these 3 types of contributions into an IRA does not mean it will actually let you do it.

Your 401(k) plan can choose to be more restrictive than the law if it wants to. Think of it this way. A teetotaler can legally drink beer in our country. But he chooses to be more restrictive than the law and will not allow alcohol consumption in his life.

Your 401(k) plan can do this exact same kill-joy behavior by being more restrictive on allowing rollovers while you are still employed.

(Don’t worry about it once you quit working for your employer. They can’t restrict you from rolling over your funds into an IRA at that point.)

That’s why you must ask your 401(k) plan provider what their rules are concerning in-service withdrawals (that’s just industry jargon for being able to make withdrawals while in the service of your employer).  

In Conclusion

This should help answer a lot of your questions on whether or not you can rollover your 401(k) while still working. If you have other questions or concerns about your own 401(k) that you would like to ask me, then send me an email.

Or if you’d like to talk about it, you can get on my calendar for a 20 minute phone conversation by CLICKING HERE to claim a spot on my calendar.

And if you know anyone else that has questions about rolling over their 401(k), be sure to forward this article to them. I believe we can all make a bigger impact together than I can by myself. A great way to share it with your friends is to click the Facebook share icon to the left of the screen.

In your service

Chris Hammond

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This information is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Tri-State Financial Group and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.

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