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Early Retirement Plan Rollovers

You may be able to take your 401(k), 403(b), or 457 plan and roll it into another type of retirement account while you are still working. Let’s look at how these rollovers can happen and if they may apply to you.

To start, some basics. Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income, and if you take one before age 59½, a 10% federal income tax penalty commonly applies.1 In addition, 20% of the withdrawn amount is withheld for tax purposes. Generally, once you reach age 72, you must begin taking required minimum distributions.

Now, the fine print. You may be able to take a distribution from your qualifying, employer-sponsored retirement plan while still working, via an in-service non-hardship withdrawal.2 This is done by arranging a direct rollover of these assets into an individual retirement account (IRA) to potentially avoid both the 10% penalty and the 20% tax withholding in the process. It’s important to note that this option is only available if allowed by your employer.

The criteria for making in-service non-hardship withdrawals can vary. Some workplace retirement plans simply prohibit them. Others permit them when you’ve been on the job for at least five years, when assets in your plan have accumulated for at least two years, or you are 100% vested in your account.2

Let us know if this is something of interest for you and we can explore it together.

  1. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
  2. https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions

Mike Minter

Mike develops investment portfolio allocations, handles trading and rebalancing, and conducts research and analysis as a Portfolio Manager and Financial Advisor for the firm. As a perpetual student of investing and the markets, Mike considers himself obsessed with the subject. Mike has earned the CERTIFIED FINANCIAL PLANNER™ (CFP®) and Certified Fund Specialist® designations. He is also an active member of the Houston chapter of the Financial Planning Association (FPA).   Read Mike’s Profile HereRead More Articles by Mike

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