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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: hexdexorex on January 29, 2015, 03:17:54 PM

Title: Rolling over a 401k plan while employed
Post by: hexdexorex on January 29, 2015, 03:17:54 PM
From the very little research I have done it seems like this is not possible unless you are a certain age. I just noticed my employer has switch to a new brokerage who charges a record keeping fee of .07. This might seem low but it is higher than the vanguard fund I have all my investments in which is .04 so its pretty annoying.

I guess my question is are there petitions out there to get Washington to allow rollovers while employed? It seems like the only way to get brokerages to compete with each other on fees is to open this system up.
Title: Re: Rolling over a 401k plan while employed
Post by: Eric on January 29, 2015, 03:35:44 PM
Not many, but some plans do allow it.  It's believe it's called an "in service distribution".  There's no need to petition Washington.  Petition your employer!  (Assuming your employer isn't the Federal Gov't of course!)
Title: Re: Rolling over a 401k plan while employed
Post by: Workinghard on January 29, 2015, 03:45:28 PM
My husband's plan allows it, and we rolled over the max allowed last year. Mine doesn't. We just invest in the cheapest index fund in our 401k--the S&P 500. We "balance" our Vanguard funds.
Title: Re: Rolling over a 401k plan while employed
Post by: hexdexorex on January 29, 2015, 03:56:03 PM
Not many, but some plans do allow it.  It's believe it's called an "in service distribution".  There's no need to petition Washington.  Petition your employer!  (Assuming your employer isn't the Federal Gov't of course!)

From the research I did I would have to be 59 1/2
http://www.goodfinancialcents.com/in-service-distribution-401k-rollover-while-still-working/
http://thefinancebuff.com/in-service-withdrawal-the-law-and-the-plan-rules.html
Title: Re: Rolling over a 401k plan while employed
Post by: seattlecyclone on January 29, 2015, 04:00:49 PM
Yeah, the law doesn't allow for non-hardship in-service distributions of pre-tax and Roth contributions before age 59, so it's not as simple as your employer changing their plan document. In-service distributions of traditional after-tax funds are allowed (enabling the "mega backdoor Roth"), but that's as far as you can go.

Put these fees into perspective: 0.07% added expenses on a $100k 401(k) balance is a whopping $70/year. You will save way more than this in taxes by making your contributions. Next time you change jobs, roll over the balance to an IRA and invest it how you like.
Title: Re: Rolling over a 401k plan while employed
Post by: hexdexorex on January 29, 2015, 04:06:25 PM
Yeah, the law doesn't allow for non-hardship in-service distributions of pre-tax and Roth contributions before age 59, so it's not as simple as your employer changing their plan document. In-service distributions of traditional after-tax funds are allowed (enabling the "mega backdoor Roth"), but that's as far as you can go.

Put these fees into perspective: 0.07% added expenses on a $100k 401(k) balance is a whopping $70/year. You will save way more than this in taxes by making your contributions. Next time you change jobs, roll over the balance to an IRA and invest it how you like.

Yeah I know how much it is on 100k...I have a good amount more which makes the lack of options in the plan and the fee enough for me to be annoyed. Also almost every brokerage out there would offer me a good bonus for transferring those funds to them and I will have the choice of any fund in the market and not be restricted to 9 high fee funds and 1 low fee fund with average returns.

I recognize someone complaining about a .07 might seem extra frugal...but I guess that I why I bitch about it on this super frugal forum :).

Also the lack of transparency is just annoying...for fees just to show up without much documentation. When I complained it took the Fidelity guy 10 minutes to find the mention of the fee in the paperwork.

brokerage bonus options
http://www.hustlermoneyblog.com/best-brokerage-bonuses/
Title: Re: Rolling over a 401k plan while employed
Post by: Eric on January 29, 2015, 04:09:44 PM
Not many, but some plans do allow it.  It's believe it's called an "in service distribution".  There's no need to petition Washington.  Petition your employer!  (Assuming your employer isn't the Federal Gov't of course!)

From the research I did I would have to be 59 1/2
http://www.goodfinancialcents.com/in-service-distribution-401k-rollover-while-still-working/
http://thefinancebuff.com/in-service-withdrawal-the-law-and-the-plan-rules.html

Oh, sorry.  I didn't realize the age requirement was so strict.  Thanks for the links.
Title: Re: Rolling over a 401k plan while employed
Post by: iamadummy on January 29, 2015, 05:11:34 PM
There is a way around it. Check if your plan allows for a self-directed IRA.