50+ Lifestyles

In Service Rollovers – Lock in Gains

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

Stock and Mutual Fund Markets (as of this writing)
continue their terrific gains with new highs coming as a normal course. How long will this bull market run continue? We are entering the seventh consecutive year of market gains. Retirement account values continue to reflect very nice gains. A planning strategy to capitalize on these gains is the “in-service rollover.” This type rollover was once not available but now continues to be more prevalent within many retirement plans. If you are a current participant in an 401K,403b,457, or other profit sharing plan, the in-service rollover could be a very important option for you to consider. This little known strategy allows you to rollover a portion of the plan WHILE STILL EMPLOYED.

Does your plan offer the in-service rollover? The retirement plan must specifically allow for the in-service rollover. Not all plans allow in-service rollover. Your retirement plan document must state the availability of this option. Previously this type of rollover could only take place when employees separated from their employers. Now if your current plan allows, you may be able to move some of your retirement assets to an IRA WHILE STILL EMPLOYED. The best way to determine whether in-service rollover is available for you is by calling the 800 customer service number listed on your plan statement.

Why consider an in-service rollover or an In-Service Distribution? There are three basic reasons to consider this move. 1st FREEDOM – an in-service distribution may offer you a wider range of options better suited to your needs and freedom from the volatility associated with plan allocations. Second – GUARANTEES – an in-service distribution may provide guarantees to help protect that valued retirement nest egg not available through your current plan. Third – CONTROL-an in-service distribution may also allow you additional control of distributions even after your death so that your beneficiaries receive lifetime income rather than a lump sum.

There are huge benefits of rolling over in-service distributions to your own IRA. Most retirement plans don’t offer participants personal advise based upon their individual circumstances. By moving your assets into an IRA you will work with local financial professionals. I heard from a client recently stating their company’s 401K advisor was coming in from out of state for his annual or semi-annual visit to the firm. Client didn’t even remember the financial advisor’s name. Contrast that to having a local person with local phone number….and who answers phone with a live voice OR returns your phone call inquiry within no longer than 24 hours.

Another advantage to the in-service rollover is to extend additional investment options. Some employer provided retirement plans offer too few investment choices, others offer far too many. We often recommend the safety and flexibility of the index annuity(s) for a portion of retirement assets. Why? …..because index annuity account values never decline with stock and mutual fund market volatility. Often time retirement plans such as 401ks, 403bs, or profit sharing plans do NOT offer safe money harbors EXCEPT for money market funds. Folks you know the rates these safe money harbors pay minimal interest. An index annuity could be a very good viable option for some of those retirement assets.

Other reasons to consider in-service distributions include the ability to stretch your distributions. Most retirements plans require a lump-sum distribution upon the death of the participant. Sometimes this lump-sum distribution must be paid out over a period of 5 years. If those same assets were in an IRA instead heirs would be able to stretch their receipt of money over a much longer time frame based on their own ages maximizing the tax deferral while minimizing the income taxes owed.

Further in-service distributions may give you an option of using IRA funds for higher education. While I don’t recommend this as a college funding strategy, the high cost of college has made some families want to keep all their financing options open. In a 401K funds withdrawn for college education – a 10% penalty is assessed. In the IRA the 10% penalty does not apply. Remember participants over the age of 59 ½ are not assessed the 10% IRA penalty at any time. Other options exist in the IRA not available in 401K such as first time home purchase.

Are you eligible for an in-service rollover? Encourage you to check with your plan. Call us for assistance. 563-332-2200

Richard J. Schillig, CLU, ChFC, LUTCF is an Independent Insurance and Financial Advisor with RJS and Associates, Inc. He can be reached at (563) 332-2200.