“Can I retire my 401(k) account while I am working?” This is a frequent question in the world of financial retirement planning. Saving money in a 401(k) retirement plan does offer benefits, but some people find it unfavorable. One challenge which investors may face is a lack of flexibility with their 401(k) account. For instance, if they want to invest their retirement savings, they are often stuck with their company’s plan.
Then there is the challenge of other 401(k) downsides, including control over money. Generally speaking, retirement savers don’t have the ability to move money out of their accounts unless certain circumstances are in place, these include:
- Moving onto a new job
- Retiring from the workplace
- Getting divorced
- Becoming completely disabled
401(k)s do permit withdrawals. But if certain circumstances hold, the withdrawals may be subject to income taxation and a 10% penalty. To extend employee incentives, some companies offer contribution-matching opportunities. Investors taking advantage of this may be hesitant to retire their 401(k) if it meant their savings incentive could be compromised.
What if there was a way in which a 401(k) account could be unlocked without penalty – or without losing their employer-matching incentive? There is, and it’s called an in-service alternate rollover. Let’s cover some of the fundamentals behind this exclusive, not-known-to-many 401(k) strategy.
In-Service Alternate Rollover: Strategy to Retire Your 401(k)
To be clear, the 401(k) question isn’t a small one. According to the Department of Labor, over 638,000 defined-contribution plans are in the United States, of which 80.4% make up 401(k) plans. There are 88.7 million total plan participants in the U.S., of whom 73.7 million workers are active participants.
The in-service alternate rollover strategy has sat in the ERISA code for over 35 years. Formally speaking, the ERISA code refers to the Employment Retirement Income Security Act, which was enacted in 1974 and upon which many retirement advice rules are based. An in-service alternate rollover is also known as a 401(k) ISAR.
After careful review, experienced retirement-law attorneys found a strategy which lets investors move present funds from their 401(k) account without taxes or a 10% penalty. Moreover, they can retain their employer-matching incentive and still have the ability to fund their 401(k). The net result is this 401(k) ISAR strategy gives retirement savers more control over their money and more flexibility in investment advice guidance.
In-Service Alternate Rollover Basics
An in-service alternate rollover is not a hardship provision, an in-service withdrawal provision, or a loophole. It’s a mechanism for “unlocking” your 401(k) which sat undiscovered for years, until recently. Using this strategy, retirement investors can gain more control over their investments and spurn more flexibility in their retirement-savings accounts.
To reinforce, whether this strategy is appropriate for you will depend on your personalized financial profile. Just like with any strategy, it should be well-aligned with your time horizon, financial situations, needs, objectives, and other personalized variables. If you would like to discuss whether this might be an option for you, we invite you to request a complimentary, no-obligation consultation.
Please call us at 877.GROW.SAFE (877.476.9723) to schedule an initial appointment and discuss your personal needs and situation.