Let’s start off today’s post with a question.

True or false: You can only rollover funds from a 401(k) if you leave your job. 

The answer? False!

Though it might be surprising at first, under certain circumstances, you can perform an in-service 401(k) rollover. This strategy allows you to transfer some or all of your funds from your 401(k) to an IRA while still working with your current employer.

What’s an in-service 401(k) rollover and is it right for you? Let’s find out. 

What’s an in-service 401(k) rollover?

An in-service 401(k) rollover extends an opportunity for you to transfer some or all of your 401(k) into an individual retirement account (IRA) while still working. This function presents an important chance for investors: more control over their retirement savings.

Most companies allow you to retain the full benefits of your workplace retirement plan—paycheck deferrals, company match, active status—even if you roll over the funds to a different account. 

The best part? Unlike a Roth conversion that costs you money upfront, an in-service 401(k) rollover doesn’t cost you anything. Transferring money this way also allows you to bypass the $6,000 IRA contribution limit, enabling you to contribute more money at a time.  

Several 401(k) providers allow for an in-service rollover, but be sure to check with your specific carrier on any particular rules or regulations. Some may suspend service, set a limit on account activity, or require that you hold the funds for a specific period before the rollover. 

Three important benefits of an in-service 401(k) rollover

Retirement is perhaps the largest savings goal of your life. What else do you spend your entire career saving for? Given the importance of your retirement plan, it must be tailored for your unique goals. How you save is a significant part of that story.

Rolling over funds from a 401(k) to an IRA while working has several fundamental benefits that can further catalyze your retirement savings goals. Let’s look at the top three.

More robust investment selections and strategies

For all the positive elements of 401(k)s, investment selection and plan affordability aren’t always part of them. One of the main drawbacks of a 401(k) is the limiting investment options. Investment choices may be restricted to select mutual funds, value securities, and company stock, all of which offer minimal control over corresponding fees.

We just don’t like to invest that way. At Legacy Wealth Advisors, our investment approach centers around low-cost, long-term investments. We believe that investing shouldn’t be about wading through fees, rather it should be an agent toward working towards your biggest financial goals. 

Investing in an IRA may give you more flexibility and control to choose investments that align with your investment goals. With an IRA, you aren’t limited to the small approved basket of securities from your plan administrator. You have access to a much wider reach, providing increased opportunities to build a more unique and customized portfolio. 

Of course, with great power comes great responsibility, and the choices you make need to be strategic to be more advantageous for you in the long run. 

This point dovetails nicely to our second benefit of an in-service rollover: your advisor’s ability to manage the fund. 

Ability to select a fund manager

A 401(k) is where many people house a significant portion of their nest egg. Without proper access to the account, your advisor can’t help you streamline your investment strategy across that rather robust platform. But with an IRA, they can. 

An in-service rollover gives you the chance to work with your advisor in a more hands-on way. Your advisor would manage your investments from risk tolerance to asset allocation to tax efficiency and asset location to rebalancing and more. 

This makes for a more uniform investing experience. Through an in-service 401(k) rollover, we’ve been able to help clients build portfolios aligned with their unique goals for the future. 

Increased control over investment fees

If you’re not careful, high investment fees can eat up portions of your net profit. While not all fees are bad, many 401(k) plans carry additional fees compared to an IRA, such as individual service fees and administrative fees. (Looking at your annual prospectus can give you exact figures for any fees being taken out of your investments or contributions.) You can select a financial institution with more reasonable account, management, and operational costs. 

As we mentioned earlier, by investing in an IRA you can better control the fees produced by your investments. High-cost mutual funds aren’t always the most lucrative way to build wealth long-term. Rolling your funds into an IRA gives you more control over the fees you pay—from custodians to investments and more.

A Word of Caution: When Not to Roll Over an In-Service 401(k)

Every investment account and every investor comes with a unique set of parameters, goals, and needs. While some or all of the benefits listed above may apply to your situation, it’s possible that there are demerits to consider as well, such as:

• Does rolling over your plan decrease or negatively impact your employer match?
• Does your 401(k) offer exceptionally low fees that beat what you can get with an IRA? (Fees tend to be more competitive the larger your employer’s plan; in contrast, a small business is less likely to have competitive fees.)

Again, reviewing your plan prospectus on your own or with an advisor can help you find the details of any fees or restrictions for your plan.

Legacy Wealth Advisors can help you craft your retirement journey

Our goal at Legacy Wealth Advisors is to give you the tools, resources, and confidence to craft your financial life in a way that’s true to your goals and values. 

When it comes to investing, there are several different avenues to help you get where you want to go. While a 401(k) is a beneficial account, making the most of an opportunity to roll over all or part of it into an IRA may give you more options and control over your money both now and in the future. 

Is an in-service 401(k) right for you? Get in touch with our team to talk more about how this strategy could impact you.  

Disclaimer: Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted.

All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Legacy Wealth Advisors does not offer tax planning or legal services but may provide references to tax services or legal providers. Legacy Wealth Advisors may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters.