You don't have to wait until you retire to take advantage of a 401K rollover and all the benefits that come with it. A 401K inservice withdrawal can be just what you need to advance your retirement strategy and create new investment options.
In fact, it's not unlike a general gathering all of his troops together, examining the mission, and positioning everyone where they'll do the most good. Just as this wise general can be ready for whatever comes his way, a 401K inservice withdrawal can enhance your retirement income strategy while you're still working, thus preparing for a promising future.
401K Rollovers While You're Still Working
Many 401K plans allow you to rollover a portion (or all) of your 401K into your IRA while you're working without incurring any of the penalties associated with early withdrawals. Normally, if you're under the age of 59 1/2, a 401K withdrawal could be subject to a 10% early withdrawal penalty and be treated as ordinary income, thus raising income tax concerns. These penalties could take quite a significant bite out of your retirement savings.
Why bother with an in-service 401K rollover into your IRA if you can just keep your money where it is? Let's take a look at the potential advantages1:
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Expanded Investment Options
Many companies offer just a few investment options, usually categorized by risk, target retirement date or industry. While these may have served you well during the bulk of your years of saving, they might not be able to offer you all of the choices you need as you begin your retirement years. Making your money stretch through retirement may require new investment strategies that just don't work with your existing 401K.
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More Freedom
Some 401K plans require that you invest a certain percentage of your funds in company stock, and this can lead to over-weighted positions in your portfolio.
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Consolidation of Your Accounts
Monitoring your portfolio can be tricky if your investments have become spread out over time. Consolidating them into a smaller number of accounts in fewer locations can help you and your Financial Adviser see and understand your entire financial picture.
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IRA Beneficiary Options
Different 401K plans have different rules, but if you find that your plan limits your beneficiary options, you may be able to overcome this by rolling the assets into your IRA.
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Estate Planning Options
Many investors want to pass their assets to future generations. One way to do this is with the Stretch IRA strategy which can help your assets grow and last over multiple generations. A 401K rollover makes this option a possibility.
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Professional Guidance
The Human Resources department at your company has helped you to understand your 401K options over the years, but they may not be in a position to offer in-depth, personal retirement planning advice. That's where your financial adviser comes in. With a 401K rollover to an IRA, it's much easier to develop a unique retirement income strategy that takes care of you and your family both now and in the future.
You don't have to wait until you retire to move your assets to your IRA. Many 401K plans allow for early access to your retirement assets while you're still employed, allowing you to make adjustments to your retirement plan before the big day arrives. Be that wise general. Take advantage of a 401K inservice withdrawal, and position yourself for a future of wide open possibilities.
By Seton M. McAndrews, CFP®
Seton is a CERTIFIED FINANCIAL PLANNERTM professional and Vice President of Investments at WrapManager, Inc.
Source:
1 Mainstay Investments
To the extent this presentation includes any state or federal tax advice, the presentation is not intended or written by WrapManager, Inc. to be used, and cannot be used, for the purpose of avoiding federal tax penalties. WrapManager, Inc. does not advise on any income tax requirements or issues. Use of any information presented by WrapManager, Inc. is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.
