As more and more baby-boomers are approaching 60, many have most of their wealth tied up in an employer retirement program like a 401K plan. Each employer has the choice to customize their retirement plan and adjust or select several variables. One of those variables is an in-service withdrawal.
So, what is an in-service withdrawal? An in-service withdrawal is: a withdrawal made from a qualified plan account before the holder experiences a triggering event. A triggering event, such as reaching a certain age or leaving an employer, is often needed to be able to withdraw funds from a plan, such as a 401(k) according to Investopedia.
With most 401K’s only offering 10-20 mutual funds to choose from, when you are approaching 55 and your 401K is over $500,000 many should be able to withdrawal a portion or all of their contributions into a self-directed IRA in order to diversify.
Most Americans largest two assets are their house and their 401K. The in-service withdrawal feature is so powerful in order to diversify your wealth as you approach retirement. You need to take advantage of income guarantees provided by annuities or have an advisor manage a piece of your assets outside of your plan, if that is your choice.
As companies have done away with pensions, putting more of the retirement responsibility on employees, employees should have the right, ability and option to move their money to protect their net-worth as they age and accumulate a larger balance in their 401K.
Personally, I think it should be mandatory that all 401K plans allow for an in-service withdrawal at the age of 55. The studies show that taking a negative in the last 5-10 years before retirement can be catastrophic to retiring on time and an in-service withdrawal would be another layer of protection and choice for the consumer.
So, how do you check if your company allows an in-service withdrawal? First, you can ask your HR department or business owner, if you work for a smaller company. You can also call the institution that administers your company plan. That contact information is listed on your statement or on an enrollment packet when you started working. What we do many times with our clients is do a joint phone call with the company, so we can assist with the questions to ask and understand the answers and options given and how it affects your overall plan.
If you would like to schedule a 15-minute call to determine the options on your employer plan please click here.