Question: I'm trying to roll over my 401(k) to an IRA. I'm 56 years old and still with the employer who my 401(k) is with. Is this possible?
Answer: Like many questions, says Curt Stowers, president of F5 Financial, the answer here is "it depends."
Stowers explains that, for your pre-tax contributions, rolling from your 401(k) to an IRA prior to age 59½ likely is not going to fly while you are still employed. "While there are provisions to take a hardship withdrawal," he notes, "simply moving from the 401(k) to the IRA prior to 59½ is out of bounds from the IRS' perspective."
However, your after-tax contributions are a different matter, Stowers adds. "Many plans will allow you to roll these over to a Roth IRA, although the company's contributions are not likely going to be eligible to roll over to the IRA."
Stowers explains that one way to indirectly get the funds into an IRA is via a loan from your 401(k). "Many plans allow for a loan and have you pay interest to yourself. In this case, you could borrow the money and use the borrowed funds to contribute to the IRA." He's not a big fan of this approach, but it could be made to work.
"Finally," says Stowers, "I suspect that you might be exploring this alternative as either the investments in or the cost structure of your 401(k) is not very attractive." If this is the case, he recommends reviewing all investment options in the 401(k) plan, as often there are one or two that may be more attractive from a cost and/or strategy standpoint. "You also might want to raise your concerns to the plan fiduciary, often the business owner," he says. "You may find that your education on the topic is beyond theirs and they might ask you for help in redesigning the plan."
Got questions about the tax law, Social Security, Medicare, retirement, investments, or money in general? Email Robert.Powell@TheStreet.com. Kim McSheridan assisted with this report.
Get Access to Our Exclusive Content
Already subscribed? Log In