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401(k) Partial Roll Over to an IRA While Still Employed?

Here is the situation.

  1. My wife works for a company and she has 401(k)
  2. Part of her 401(k) is invested in a money market fund
  3. Can she roll money market fund over to an IRA?

She is not leaving her job/the company.

If this works out, we would like to give access of the new IRA to a financial advisor.

My question is, is it possible to roll over a portion of 401(k) to an IRA even though the employee has not left the company?

Thanks, Venkat.

Dec 12, 2012 by RAMARAO from Columbus, OH in  |  Flag
3 Answers  |  7 Followers
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15 votes

Hello Venkat,

The critical component of this equation will be, "How old is your wife?"

If your wife is age 59 and 1/2, then she can access the funds in her 401(k) - to roll them to an IRA (not a taxable transaction), or to use them for any other purpose (probably a taxable transaction) IF your employer plan allows in-service withdrawals. The plan is not required to do so, but most plans do have this provision in the plan document.

The quickest way to find out this information is usually by referencing the Summary Plan Document (SPD). Many employer plan websites have this available for download. If not, then the HR department (or plan administrator in a small busines) will be able to provide it. It is required to be available for all employees.

As to your question about the money market fund - all plans are required to have more investment options than just a money market fund. The minimum number of investment options for a plan to have - and still be qualified under ERISA - is 3 (cash, stocks, bonds). However, most plans offer at least 5 options, with the average number being 8-13 options. Some offer many more. So - if the issue is merely the fact that the money is invested in a money market - then just move money to other investment options. You might consult with a fee-only financial advisor to optimize the portfolio within the available choices within the plan, or see if your plan has an asset management service within the plan that will manage the portfolio for you for a small fee.

Can I move the money market? Virtually all plans distribute the holdings in cash if you execute a rollover. Rarely there will be the option to move the actual investment "in kind" from the 401(k) to an IRA. I have seen it a few times, but this is generally rare.

So - in summary:

1) Yes - MAYBE she can move it if she is 50 1/2 or older. Get the SPD. 2) Check out the other investment options in the plan before you do it - it is possible just moving the money around will serve your purpose.

Personally, I'd keep the money IN a 401(k) versus an IRA if:

1) I was under age 55, AND 2) The investment options were adequate, AND 3) The plan was not unduly expensive with plan fees.

The reason behind my logic is that once you are age 55 - IF you are no longer working for THAT employer - you can withdraw funds from THAT 401(k) with no penalty. However, if you roll those funds into an IRA, then penalty-free withdrawals are not available until age 59 1/2. So, an old 401(k) can serve as an emergency source of funds between ages 55 and 59 1/2 in the event that life events don't play out as expected.

Jon Castle http://www.WealthGuards.com

View all 4 Comments   |  Flag   |  Dec 12, 2012 from Jacksonville, FL
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11 votes
John E. Benedict Level 13

Some companies do allow for what is called an in-service withdrawal of a 401k to an IRA. Not all companies allow this option though. An in-service withdrawal allows for certain monies to be rolled over. These could include Employer contributions (match), profit sharing contributions and employee after tax contributions.

Please contact your wife's 401k provider as they will be able to tell you if they allow for an in-service withdrawal of her 401k.

Good Luck.

2 Comments   |  Flag   |  Dec 12, 2012 from Troy, MI
Mark Charles Schreiber

The in-service withdrawal should be described in the Summary plan description. This document is available from your employer HR dept. Normally it is age restricted at 591/2. As John mentioned a call to the plan provider or HR dept should give you the answer.

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Venkat - John is dead on with his in-service withdrawal options. I'd also add, assuming your wife is unhappy with her 401k plan (being that she had "presumably" long-term money sitting in a money market fund) she should get on her employer to improve said plan. The 401k industry is experiencing rapid change (for most part, for the better) so inquiring about improving the plan would not hurt.

Good luck to you and your wife.

Marcus

2 Comments   |  Flag   |  Dec 12, 2012 from Long Beach, CA
Michael

Venkat - There are a number of companies that do allow in-service withdrawals to a IRA, there are just as many rules for doing so. Some companies allow with no penalities, some cut their match for a period of time such as six months. Some will allow a portion or percentage of funds to be rolled over, some allow all funds to be rolled over. The number of answers to this question are as vast as the number of companies that offer plans. You can get this answer by questioning your plan sponsor. My question to you would be why is your wife sitting with money in a money market fund. In todays market MMF's offer almost no return. If you are already working with an advisor and are comfortable with that advisor you should sit with him or her to come up with a good asset allocation for these monies even if she is not able to move the money to an IRA. If you are not working already with an advisor then you should interview a few and determine which would be best for your situation. In terms of working with retirement plans I would suggest working with a member of Ed Slott's Elite IRA Advisor Group. A Master Elite Member would be one who has been with this group for a longer period of time. Member of this group have a deeper knowledge of retirement planning than most advisors. I hope this answers your question Michael L. Schwartz, RFC, CWS, CFS

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