Reaching age 59½ is an important financial milestone for anyone contributing to a 401(k) or similar retirement plan. At this age, you gain the flexibility to move some or all of your retirement assets directly into an IRA through what’s known as an in-service rollover. Understanding this option can enhance your financial security and strengthen your overall retirement plan.
What Is an In-Service Rollover?
An in-service rollover is a strategy that allows you to transfer funds from your employer-sponsored retirement plan, such as a 401(k), into an Individual Retirement Account (IRA), even while you’re still employed and actively contributing. If done correctly, this transfer occurs without taxes or penalties.
Key Benefits of an In-Service Rollover
1. More Investment Freedom
By design, most employer-sponsored retirement plans offer limited investment selections. Most plans offer a handful of mutual funds and a suite of target date funds. This can limit growth and flexibility at a time when you should be fine-tuning your retirement plan, not settling for a one-size-fits-all portfolio.
In contrast, rolling funds to an IRA allows you access to a broader range of investment opportunities, including:
- Individual stocks and bonds
- Exchange-traded funds (ETFs)
- A wide variety of mutual funds
- Alternative investments and income-oriented solutions
- Advisor-guided strategies tailored to your financial goals
2. Consolidation and Simplification
Managing your retirement accounts becomes easier when they are consolidated in one place. An in-service rollover allows you to simplify your financial landscape and provides clarity in tracking your progress toward your retirement goals.
3. Potentially Lower Fees
IRAs can often carry lower fees and expenses than employer plans. Reducing these costs may help your retirement savings grow more efficiently over time.
Does This Affect Your Employer Contributions?
No. One significant advantage of an in-service rollover is that you can continue contributing to your employer-sponsored plan as usual. You’ll still receive your employer’s matching contributions, even after moving assets to an IRA.
Is an In-Service Rollover Right for You?
Your financial situation is unique. While an in-service rollover offers many benefits, it’s important to consider factors such as investment options, costs, creditor protections, and your overall retirement goals.
If you’re nearing age 59½ or have already reached this milestone, now is the perfect time to review your retirement strategy. Contact us to discuss whether an in-service rollover aligns with your personal financial plan.
Strategies for a Smart Roth Conversion Plan
- Use a Multi-Year Approach: Spreading conversions over multiple years can help manage tax brackets and avoid large tax spikes.
- Time It Right: Analyze taxable income annually to determine the optimal conversion amount while staying within a favorable bracket. If you’re 63 or older, keep in mind that higher taxable income from conversions could increase Medicare premiums due to Income-Related Monthly Adjustment Amounts (IRMAA).
- Stay Informed on Tax Laws: Changes in tax policy could impact Roth conversion strategies, so ongoing review with a financial advisor is key.
Roth conversions in retirement can be a strategic way to manage taxes, control future income, and leave a tax-efficient legacy. However, every situation is unique. If you’re wondering whether a Roth conversion makes sense for your financial plan, we’re here to help. Let’s start the conversation and create a strategy tailored to your goals.
Stay Ahead with Expert Guidance
Sources:
1RMDs begin at age 75 for those born January 1, 1960 or later
2Exceptions to the 10-year rule include: surviving spouse, minor children of the decedent, those critically ill or disabled, and those not more than 10 years younger than the original account holder.
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