By Greg Lohr, MBA and Ethan Lohr, CFP®
For many of us, a 401(k) plan is our single largest source of retirement savings and may represent a substantial portion of our income during retirement. According to the Investment Company Institute, roughly 60 million people participate in 401(k) plans. (1) But just contributing to your plan is often not enough to guarantee a comfortable retirement. Understanding the features of your plan is just as important as the contributions themselves. In this guide, we’ll explore the benefits of an in-service rollover and how you can tell if it’s the right option for you.
What Is an In-Service Rollover?
An in-service rollover is a feature offered with many 401(k) plans in which current employees are able to move some or all of their 401(k) funds into an IRA. Most people think that rollovers only apply when you change jobs or retire, but an in-service rollover allows you to move your money while you’re still employed. While this is a common feature, it’s not offered with every 401(k) plan, so it’s important to consult with your plan provider before moving any money from your account.
If your plan does offer an in-service rollover, there are many benefits to incorporating this option into your retirement plan.
Typically there is a 10% penalty for withdrawing retirement funds before you reach full retirement age. With an in-service rollover, however, you will avoid this penalty if you are at least 59½ at the time of the transfer. You also won’t be required to pay the deferred taxes on the funds that you roll over. Essentially, you are just moving the money from one account to another.
This is a unique planning opportunity that can be used to strategically reposition your investments in the years leading up to retirement.
Better Investment Options
Another benefit of an in-service rollover is exposure to better investment options that may not be available through your company’s 401(k). A typical employer-sponsored 401(k) plan is required to have at least three investment options, but some will have a couple dozen. The average plan has between 8 and 12 investment alternatives. (2) Still, this pales in comparison to the seemingly infinite options available on the open market.
Utilizing an in-service rollover can be an effective way to gain both greater flexibility and more control over your investments, allowing you to tailor your investments to your long-term financial goals.
Not only does an in-service rollover give you access to greater investment opportunities, it also opens you up to outside expertise. With a 401(k) plan, the plan administrator is in control of all account transactions. They may offer some assistance with investment advice and financial planning, but it often comes from someone within your company or a third-party service you’re not allowed to vet or alter. This can make it difficult to trust your advisor and feel that they’re truly working for you.
Once your funds are transferred to an IRA, you will have full control. You can hire anyone to advise you or make trades on your behalf. This way you can take the time to find an advisor who makes you feel comfortable and provides the level of expertise you need.
Is an In-Service Rollover the Right Choice?
Deciding to utilize an in-service rollover is a choice that shouldn’t be made in isolation. It’s important to consider your full financial picture before transferring an account. At Lohr & Company, we can help you navigate this choice to ensure you make a confident decision. If you would like to learn more about in-service rollovers and how they can be used in your retirement plan, schedule a complimentary introductory meeting online or reach out to us at 434-260-6742.
Greg Lohr founded Lohr & Company, a multi-generational financial advisory firm, in 1993 to help more people plan for a rewarding, well-deserved retirement. Before he entered the financial services industry, he worked as an electrical engineer. But after spending a few years as an engineer, he decided to follow his heart and return to school for an MBA in finance from the College of William & Mary. Although he originally entered the finance industry because he was excited about the personal opportunities, it was the satisfaction of seeing people at peace with their money that has kept him here for his entire career. He is passionate about building lifelong relationships with his clients and walking with them as they navigate financial decisions and milestones.
When he isn’t working, Greg enjoys spending time with his beautiful wife and their adult children. In addition to managing their family farms, Greg and his wife also manage a growing Airbnb venue. In the cold weather months, you can find Greg hunting whitetail deer in the breathtaking Virginia landscapes. To learn more about Greg, connect with him on LinkedIn.
Ethan Lohr always knew his dream was to follow in his father’s footsteps and carry out his same mission: to help more people find financial peace and security in retirement. Ethan started practicing for his future career quite early, at the age of 6, advising his sisters on their savings with the help of his trusty calculator. But it wasn’t until he graduated from James Madison University that he truly began developing his talent as a financial advisor at Lohr & Company. Ethan is a CERTIFIED FINANCIAL PLANNER™ professional.
Ethan is most fulfilled when he’s helping clients develop a sound plan and then executing that plan. He knows that pre-retirees often have many unanswered questions and may be feeling trepidation about retirement—and rightfully so. Retirement is one of life’s greatest transitions and Ethan knows how important it is to get everything right the first time. He works to ease his clients’ fears, provide them with confidence, and help them take the necessary actions to move forward.
When he isn’t serving clients, Ethan enjoys spending time with his wife and two sons. You can also find him practicing his swing on the golf course, exercising, and hunting with his dad. To learn more about Ethan, connect with him on LinkedIn.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. Fixed insurance products and services offered through Lohr & Company, LLC or CES Insurance Agency.