By Xavier Brenner When people think about rolling over their 401(k) plan, it's usually only when they change jobs or near retirement. They either do nothing or, if still working, reflexively shift their saving into their new employer's plan without giving a lot of thought to the alternatives.
Yet you may have far more control over your retirement savings plan than you realize. If you're unhappy with the returns and fees of your current employee-sponsored plan, it might be time to rethink your strategy and look outside your company for other options. If so, here are three tips to guide you along the way.
1) In-service distributions
If you find yourself in a subpar plan with high fees and few investment options, you may be able to take an in-service distribution. Employers rarely advertise this fact, but some corporate retirement plans allow active employees to roll over some funds from their 401(k) account into an individual retirement account (IRA) before full retirement age. Federal tax law allows workers to roll their 401(k) assets into an IRA once they hit 59 ½ without the federal 10% penalty and the state penalty. Some 70% of companies surveyed back in 2006 by the Profit Sharing/401k Council of America offered in-service transfers to eligible employees. If you are younger than 59, you may still be able to participate. The law does allow distributions of money rolled over from previous 401(k)s in some cases. Check with your human resources department to see if you are eligible and what limits there may be. (And don't be surprised if your plan administrator isn't familiar with the 59 ½ provision, especially if you work in a smaller company.) Keep in mind that you can't roll your 401(k) directly into a Roth IRA, which is treated differently for tax purposes. Also, think twice before withdrawing cash from your company-sponsored retirement plan early. Financial experts overwhelmingly agree this is a very bad idea, save for instances of real hardship.