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401(k) flexibility

February 25, 2013

The conventional wisdom regarding 401(k)s is that, while they are commonly understood to be a great retirement savings strategy, they are not particularly flexible. In fact, many clients I talk to are firmly convinced that they are locked into their 401(k)s and that they have little to no choice what happens to those funds. The reality is a little bit different, however—at least for many people—because of a concept known as in-service distribution.

In-service distribution, or an in-service withdrawal, is a feature found in many plans that grants additional investment flexibility by enabling account holders to withdraw funds early and roll them into an IRA. For many accounts, the magic age at which that becomes possible is 59½, but some accounts allow you to have access even earlier—there are some that allowed account-holders to access more than half of their money at age 55.

The benefits of utilizing an in-service distribution strategy can be significant. At a time when the markets have been volatile and the only certainty is uncertainty, investing some of those rolled-over funds in a more conservative manner and diversifying your portfolio makes a lot of sense. It is always important to review any actions carefully and discuss any withdrawals with a trusted advisor, as certain withdrawals can impact future contribution limits, and there are circumstances where a failure to distribute company stock in a 401(k) might expose you to additional taxes.

The bottom line, however, is that using an in-service distribution to roll funds into an IRA provides you with a wider range of investment options and greater control of your financial future—and for those investors that take the time to understand the financial landscape, and move forward with counsel of a trusted financial adviser, that is never a bad thing.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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