This post is so important I felt the need to use a cute puppy photo to entice you to click on it. Seriously, I have no shame. None at all. You really need to know about this.
My goal is to help every investor become savvier and financially educated. So here is a handy tidbit that many folks don’t know about: In-Service Distributions
What’s an in-service distribution?
An in-service distribution is a withdrawal made from a qualified plan, such as a 401k, made prior to the employee’s retirement or termination from service.
In less fancy speak, it means taking money out of, or rolling over your 401k before you quit or retire without a tax penalty.
Why would you want to do this?
- 401k’s and defined benefit/pension plans might be pretty limited in what their investment choices are.
- By being able to access your retirement money and roll it over into an IRA, you may have the ability to have more investment options available to you. In other words – You might have more ownership of your retirement choices! You wouldn’t be limited to what your qualified retirement plan offers!
When can you do this?
Many plans allow you to do this when you reach 59 ½. For defined benefit/pension plans, you need to be 62.
How much can I take roll over to my IRA?
You can’t take out more than your vested benefit. In other words, what you contributed from your check. If your employer matches, you can roll it over, but only if you are vested.
Can I just take it out and spend it?
Yes, you can. Of course, you will have to pay income taxes on the withdrawal. Also, withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax.
How do I find out if I can do this at my company?
Contact your retirement plan administrator and ask them about in-service distribution options. They will tell you if your plan participates and what the rules are.
So enjoy your new information! I hope this helps you with your future financial planning.
Do you think you’ll take advantage of an in-service withdrawal?
In service distributions may have potential disadvantages including the loss of the beneficial “Net Unrealized Tax Treatment”. Be sure to consult with your plan administrator before implementing this strategy.
Sharon L. Herman AAMS, ADPA is the CEO of Silver Key Wealth Management, and affiliated with LPL Financial. www.silverkeywealth.com 813.661.1926
An ADPA (Accredited Domestic Partner Advisor) designated Financial Advisor can assist you with your choices if you need help from professional.
The opinions expressed in this material do not necessarily reflect the views of LPL Financial.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Silver Key Wealth Management, a registered investment advisor and separate entity from LPL financial.
Ms. Herman may only discuss and/or conduct transact securities business with residents of FL, MI, GA, VA, NJ, TX. www.finra.org. www.sipc.org