Escape your workplace retirement plan

February 12, 2014

Your workplace retirement plan may not be the best place for you to keep your investments. You may be able to escape the lack of investment choices and/or high fees with an in-service rollover. This will allow you to transfer your investment assets out of a 401(k), 403(b) or TSP into a self-directed IRA.

70% of employer plans allow workers older than 59 ½ to participate in in-service rollovers. While just over 15% of plans allow for younger workers to take advantage of them. If you are among the younger group there are a few other rules as to which assets you can and cannot roll over. As I mentioned in the last article, Retirement Savings – Best to Worst Places to Invest, taking advantage of the employer match is likely the best place for your initial retirement savings. Now that you’ve collected the match, find the best set of investment options for you. This is likely in a self-directed IRA.

Taking advantage of an in-service rollover means that you transfer part or all of your vested balance out of the plan. You can do this and continue participating in the plan. You will not be giving up on your employers match to your new contributions or hurting your vesting schedule. It can greatly improve your investment selection. It may even allow you to invest in different types of investments not offered in your current plan. I will cover basic investment categories in the next article.

To be sure you are not creating a taxable event you should transfer directly to the new custodian. You can take the check directly and then deposit the funds in your IRA within 60 days.

If you are a Federal employee, as so many in our area are, the TSP only allows for you to take advantage of an age-based rollover once and you must be 59 and a half. The details for Feds can be found here on the TSP website.

To find out if your plan allows in-service withdrawals check with your HR department or call the investment company that runs your plan. They will not go around advertising it. Let them know that you are interested in an in-service rollover and ask if the plan structure allows for the transfer. If they are not sure keep asking.

If you do not have the option for an in-service –rollover you need to make the most of what you have. DeFrehn Consulting offers personal guidance in choosing the best allocation for you within your workplace options. Just call or email and get help today.