| Many people work for employers who offer a | | | | still employed, pay the ordinary income taxes due, and |
| less-than-desirable 401(k) plan. Unfortunately, many | | | | spend what's left. |
| 401(k) plans offer only a limited number of investment | | | | The law allows this, but employers don't have to permit |
| options, which prevents plan participants from | | | | it. Still, 70% of companies -- and 89% of those with |
| diversifying their retirement account. Additionally, a | | | | 5,000 or more employees -- allow these in-service |
| 401(k) may offer only investments with average to | | | | withdrawals. In-service withdrawals can also be made |
| poor performance track records. Finally, some 401(k) | | | | out of 457 plans, 403(b) plans, and other retirement |
| plans only offer investment options with high annual | | | | accounts. |
| expenses. Are employees of companies offering | | | | Another potential advantage of taking an in-service |
| inferior plans simply out of luck? | | | | withdrawal is that the funds can immediately be |
| Employers and 401(k) plan administrators don't | | | | converted into a Roth IRA, where future earnings will |
| advertise this fact, but most workers 59 and a half | | | | be tax free. Yet another reason to consider an |
| and older can roll over 401(k) funds into an IRA while | | | | in-service distribution is if you're planning on leaving |
| they're still employed and contributing to the plan. This | | | | retirement money to your kids or grand kids instead of |
| process is called an "in-service" distribution. This | | | | to a spouse. Under a 2006 law chance, kids and other |
| maneuver allows employees to roll their 401(k) funds | | | | non-spousal heirs can roll 401(k) s into inherited IRAs |
| into an IRA, where they have more control of their | | | | where withdrawals and tax deferral can be stretched |
| investments and access to better investment options, | | | | out for decades, but only if the employer permits it, |
| and still contribute to their employer's 401(k) and | | | | which not all do. To avoid any issues, get the money |
| receive a company match. Alternatively, this process | | | | out now and put it into an IRA that won't have any |
| allows employees to take cash out of their plan while | | | | employer getting in the way of your family's needs. |