401k in-service withdrawals

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Workinghard
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401k in-service withdrawals

Post by Workinghard »

I recently became eligible to participate in my company's 401K. There's not much in there yet ~$3100. When I was checking the plan, I found out I can do an in-service withdrawal. The fees on the funds range from 1.41-1.61. I want to do a rollover IRA to Vanguard. I'm gradually increasing my contributions every month until I reach the max $17,500. Next paycheck, I'll be at $13,750. How often should I do in-service withdrawals? If I'm doing frequent rollovers, should I just keep current investments in a money market fund?
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Zabar
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Re: 401k in-service withdrawals

Post by Zabar »

Check whether there are age or other requirements for employees to take in-service distributions. Where I last worked, the age requirement was 59.5.

If you're going to take in-service distributions, then it doesn't make sense to invest in any fund that has a load. But the high expense ratios you mention won't have a significant effect on your investments in absolute terms since your contributions aren't huge and you're not keeping the money in the 401(k) for long. So the frequency with which you to a trustee-to-trustee transfer is a matter of how much you enjoy doing paperwork. Personally, I wouldn't do it more frequently than quarterly; but that's just me.
pkcrafter
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Re: 401k in-service withdrawals

Post by pkcrafter »

Most companies have a limit on in-service withdrawals. Two years is typical--check with your company. There may be other restrictions as well.

Does your company provide a match? Your fund expenses are very high, but it's possible that all administrative fees are part of those expense ratios (ERs). Some plans are set up that way, so you should find out. Are any lower cost options provided? In order to conform to ERISA (Employee Retirement Income Security Act), many companies provide at least one low cost option, so you should also find out if your company is exempt from ERISA. You can post the fund options, tickers, if any, and ERs if you want help with choosing funds.

Paul
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JW-Retired
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Re: 401k in-service withdrawals

Post by JW-Retired »

Workinghard wrote:I recently became eligible to participate in my company's 401K. There's not much in there yet ~$3100. When I was checking the plan, I found out I can do an in-service withdrawal. The fees on the funds range from 1.41-1.61. I want to do a rollover IRA to Vanguard. I'm gradually increasing my contributions every month until I reach the max $17,500. Next paycheck, I'll be at $13,750. How often should I do in-service withdrawals? If I'm doing frequent rollovers, should I just keep current investments in a money market fund?
If you are maxing out at $17.5k early in the year make sure your company "trues up" the company match on a yearly basis and not just per-paycheck. Mine did not true up, consequently if I had maxed out at $17.5k halfway through the year, and not contributed the rest of the year, I would have missed out on half of the match.
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dickenjb
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Re: 401k in-service withdrawals

Post by dickenjb »

I do hope the company does some matching, otherwise this is a pretty poor plan.

I would move the money annually if permitted. I don't like paperwork.

My company only allowed ISW of company matching contributions - not employee before tax contributions. I used this loophole to sell employer stock back before Enron when we weren't allowed to move the employer matching contributions out of company stock. Post-Enron, that changed.
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Workinghard
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Re: 401k in-service withdrawals

Post by Workinghard »

Thanks, everyone. Since the website did not specify the answers to some of the questions you raised, I called the company.
I do have to be 59.6 to do an in-service withdrawal. Thanks for pointing that out, Zabor.

Paul, there is a match but it's only 50% up to the first 3%. Supposedly, I have to work 7 years to be considered vested. However, the website shows I'm fully vested now. Not sure if I'll be there for another 6 years or not since we currently have 25x our annual spending. I do want a cushion though and will reevaluate the longevity factor when my husband retires in a few years.

I also went through all the fund options and went with the lowest fee one (outside of a MMF). It's an index fund with large cap stock and the fee is 0.58. It's only a short term investment, less than 3 years, at which time I'll transfer to Vanguard. Since the max contribution is 17,500 a year, I don't think it will significantly affect the rest of our portfolio as far as balance.

Waiting to find out if the company "trues up" on a yearly match...

Thanks again for the input, and don't hesitate to tell me if you disagree with me. Nothing is cast in stone and I can always make changes!
leonard
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Re: 401k in-service withdrawals

Post by leonard »

Workinghard wrote:I recently became eligible to participate in my company's 401K. There's not much in there yet ~$3100. When I was checking the plan, I found out I can do an in-service withdrawal. The fees on the funds range from 1.41-1.61. I want to do a rollover IRA to Vanguard. I'm gradually increasing my contributions every month until I reach the max $17,500. Next paycheck, I'll be at $13,750. How often should I do in-service withdrawals? If I'm doing frequent rollovers, should I just keep current investments in a money market fund?
Most plans have a charge to cut a check - in-service WD, rollover, distribution, whatever.

How much does your plan charge for an in-service WD check?

Other than your time - the cost of cutting the check is the main expense you need to take in to account.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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ruralavalon
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Re: 401k in-service withdrawals

Post by ruralavalon »

Workinghard wrote:I also went through all the fund options and went with the lowest fee one (outside of a MMF). It's an index fund with large cap stock and the fee is 0.58. It's only a short term investment, less than 3 years, at which time I'll transfer to Vanguard. Since the max contribution is 17,500 a year, I don't think it will significantly affect the rest of our portfolio as far as balance.
Definitely use the 401k, match or no match. A large cap index fund at ER 0.58% is not that bad, so use that fund. That ER is certainly not high enough to warrant skipping the 401k.

If you are age 50 or over your contribution limit is $23k/yr: LINK.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
Workinghard
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Re: 401k in-service withdrawals

Post by Workinghard »

leonard wrote:
Workinghard wrote:I recently became eligible to participate in my company's 401K. There's not much in there yet ~$3100. When I was checking the plan, I found out I can do an in-service withdrawal. The fees on the funds range from 1.41-1.61. I want to do a rollover IRA to Vanguard. I'm gradually increasing my contributions every month until I reach the max $17,500. Next paycheck, I'll be at $13,750. How often should I do in-service withdrawals? If I'm doing frequent rollovers, should I just keep current investments in a money market fund?
Most plans have a charge to cut a check - in-service WD, rollover, distribution, whatever.

How much does your plan charge for an in-service WD check?

Other than your time - the cost of cutting the check is the main expense you need to take in to account.
When I get closer to 59, I'll find out. Things can change between now and then. My husband recently rolled over the majority of his 401k and dodnt have to pay a fee--thankfully. Seems like they could just do an EFT and it would be so much easier and faster!
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Workinghard
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Re: 401k in-service withdrawals

Post by Workinghard »

ruralavalon wrote: Definitely use the 401k, match or no match. A large cap index fund at ER 0.58% is not that bad, so use that fund. That ER is certainly not high enough to warrant skipping the 401k.

If you are age 50 or over your contribution limit is $23k/yr: LINK.
Hmm, I wonder if they're including catch up contributions as the IRS site lists $17,500 as the maximum contribution limit for 2014.
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ruralavalon
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Re: 401k in-service withdrawals

Post by ruralavalon »

Workinghard wrote:
ruralavalon wrote: Definitely use the 401k, match or no match. A large cap index fund at ER 0.58% is not that bad, so use that fund. That ER is certainly not high enough to warrant skipping the 401k.

If you are age 50 or over your contribution limit is $23k/yr: LINK.
Hmm, I wonder if they're including catch up contributions as the IRS site lists $17,500 as the maximum contribution limit for 2014.
Yes that includes the catch-up contribution. $17.5k standard + $5.5k catch-up 50 and over (IRS link) = $23k.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
leonard
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Re: 401k in-service withdrawals

Post by leonard »

Workinghard wrote:
leonard wrote:
Workinghard wrote:I recently became eligible to participate in my company's 401K. There's not much in there yet ~$3100. When I was checking the plan, I found out I can do an in-service withdrawal. The fees on the funds range from 1.41-1.61. I want to do a rollover IRA to Vanguard. I'm gradually increasing my contributions every month until I reach the max $17,500. Next paycheck, I'll be at $13,750. How often should I do in-service withdrawals? If I'm doing frequent rollovers, should I just keep current investments in a money market fund?
Most plans have a charge to cut a check - in-service WD, rollover, distribution, whatever.

How much does your plan charge for an in-service WD check?

Other than your time - the cost of cutting the check is the main expense you need to take in to account.
When I get closer to 59, I'll find out. Things can change between now and then. My husband recently rolled over the majority of his 401k and dodnt have to pay a fee--thankfully. Seems like they could just do an EFT and it would be so much easier and faster!
Plans typically charge from $50 to $100 or so for cutting a check out of the plan. So, could be a significant "ER" to move out of the plan, depending on the amounts being moved out.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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BrandonBogle
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Re: 401k in-service withdrawals

Post by BrandonBogle »

Workinghard wrote: Paul, there is a match but it's only 50% up to the first 3%. Supposedly, I have to work 7 years to be considered vested. However, the website shows I'm fully vested now.
Vesting should only apply to any employer contributions. Any money the employee themselves contributes should always be 100% vested since it was your own money to begin with. Hence, if there has not been a match yet, it makes sense that the website shows you are fully vested now.
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Workinghard
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Re: 401k in-service withdrawals

Post by Workinghard »

BrandonBogle wrote:
Workinghard wrote: Paul, there is a match but it's only 50% up to the first 3%. Supposedly, I have to work 7 years to be considered vested. However, the website shows I'm fully vested now.
Vesting should only apply to any employer contributions. Any money the employee themselves contributes should always be 100% vested since it was your own money to begin with. Hence, if there has not been a match yet, it makes sense that the website shows you are fully vested now.
I hear ya, but based on what the website shows I can withdraw the full amount including what my employer has contibuted. It's a moot point, since I really enjoy my work and I'll find out when I reach the magic age of 59.6.
how2manage
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Re: 401k in-service withdrawals

Post by how2manage »

Guys, forgive me:

In addition to the $17,500 401k contribution, can you not make $34,500 after tax 401k contributions for a total contribution of $52,000?

That is how I currently understand the rules...Its part of what makes 401k withdrawals such a big opportunity. :moneybag :moneybag

If I am wrong, please let me know.
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BrandonBogle
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Re: 401k in-service withdrawals

Post by BrandonBogle »

how2manage wrote:Guys, forgive me:

In addition to the $17,500 401k contribution, can you not make $34,500 after tax 401k contributions for a total contribution of $52,000?

That is how I currently understand the rules...Its part of what makes 401k withdrawals such a big opportunity. :moneybag :moneybag

If I am wrong, please let me know.
Depends on the 401k plan rules. My MegaCorp used to allow it and give years stopped allowing it. Many MegaCorps still allowed it while many don't. You will have to see what your plan rules say on the subject.
Hug401k
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Re: 401k in-service withdrawals

Post by Hug401k »

how2manage wrote:Guys, forgive me:

In addition to the $17,500 401k contribution, can you not make $34,500 after tax 401k contributions for a total contribution of $52,000?

That is how I currently understand the rules...Its part of what makes 401k withdrawals such a big opportunity. :moneybag :moneybag

If I am wrong, please let me know.
The employee contribution limit is $17,500 for Pretax and/or Roth 401k (with an extra $5500 catch up for age 50 and older). The $52k you reference is the 415 limit and that is the total that can be put in the plan across the employee and the employer. Employees can't do all that on their own.

As for the active 59.5 in-service withdrawals, just be careful, most in-service withdrawals are just that- withdrawals, not rollovers. Taxes will be held and you will get a 1099R. If you want to roll it over, you may need to make up the taxes and do it within 60 days if they won't make the check out FBO Vanguard. Personally, since you did find a lower cost fund, I would leave it there for the fact that you could borrow from it in case of a real emergency. You can't borrow from an IRA.

Good luck.
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BrandonBogle
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Re: 401k in-service withdrawals

Post by BrandonBogle »

Hug401k wrote: The employee contribution limit is $17,500 for Pretax and/or Roth 401k (with an extra $5500 catch up for age 50 and older). The $52k you reference is the 415 limit and that is the total that can be put in the plan across the employee and the employer. Employees can't do all that on their own.
Some companies let you make After-Tax non-Roth contributions after the 17,500 limit. The combined total of your $17.5, any employer match, any employer discretionary/profit sharing contributions, and your After-Tax contributions cannot exceed $52k (this year).

At my MegaCorp, I used to contribute over $17.5 annually from my own pocket + 6% company match + variable company discretionary/profit sharing.
Hug401k wrote: As for the active 59.5 in-service withdrawals, just be careful, most in-service withdrawals are just that- withdrawals, not rollovers. Taxes will be held and you will get a 1099R. If you want to roll it over, you may need to make up the taxes and do it within 60 days if they won't make the check out FBO Vanguard.
Again, YMMV may vary on this. My MegaCorp lets me do non-hardship in-service distributions and rollovers. I received a check made payable to Vanguard FBO BrandonBogle Roth IRA without any taxes withheld. I mailed that check to Vanguard without issue. At my MegaCorp 401k, the in-service distributions and rollovers are only allowed for After-Tax contributions and Employer Discretionary/Profit Sharing contributions. The later category I have contemplated doing as a Traditional rollover to another 401k I have access to since I do not want a Traditional IRA for Backdoor Roth purposes.
cherijoh
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Re: 401k in-service withdrawals

Post by cherijoh »

how2manage wrote:Guys, forgive me:

In addition to the $17,500 401k contribution, can you not make $34,500 after tax 401k contributions for a total contribution of $52,000?

That is how I currently understand the rules...Its part of what makes 401k withdrawals such a big opportunity. :moneybag :moneybag

If I am wrong, please let me know.

The IRS ALLOWS after tax contributions, but employer plans are NOT required to offer them. So you have to check and see what your plan rules say. Even if after tax contributions are allowed, the plan may limit the % of your salary that you can contribute. An ex-employer allowed after tax contributions, but limited us to a combined 15% of our salary. Therefore, I never got anywhere near the IRS max of $52K.
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mister_sparkle
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Re: 401k in-service withdrawals

Post by mister_sparkle »

Piggybacking on this thread a bit...

My employer's 401k plan allows in-service withdrawals of the employer match portion of my account, so I have done that twice so far. Beginning this year, my employer froze our pension plan and in lieu of that has committed to a 4% "fixed company contribution" to our 401k plan. However, I learned this week after doing another in-service withdrawal request that this 4% fixed company contribution cannot be rolled over to an IRA via in-service withdrawal.

Is anyone aware of what the legal distinction would be between the company match (which can be withdrawn) and the fixed company contribution (which cannot)?
lynneny
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Re: 401k in-service withdrawals

Post by lynneny »

Our company also froze pensions and in lieu started making small contributions they called a "Service Reward Plan" to our 401(k). I guess that was at least partly to quell resentment over the pension freeze. Within a few years, our company dropped the Service Reward Plan and now contributes nothing to our retirement.

On topic, in-service withdrawals vary a lot. Our company allows us to withdraw only our own contributions.
Spirit Rider
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Re: 401k in-service withdrawals

Post by Spirit Rider »

mister_sparkle wrote:Is anyone aware of what the legal distinction would be between the company match (which can be withdrawn) and the fixed company contribution (which cannot)?
It could be a matter of vesting. The match could be immediately vested and eligible for in-service withdrawal and the non-elective contribution could have a vesting schedule or cliff period.

Also, while IRS regulations may prohibit what can not be subject to in-service withdrawals prior to age 59.5 (employee deferrals and non-vested employer contributions), the plan rules have sole discretion in determining what is eligible for in-service distributions if not prohibited by IRS regulations. So it could be possible for the plan to make the distinction between employer match and non-elective contributions.
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mister_sparkle
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Re: 401k in-service withdrawals

Post by mister_sparkle »

The rep I spoke to made no mention of vesting, so I don't believe that is the issue. The employee benefits manual says that as long as you've been with the company X years, 100% of employer contributions are vested, and I've been here 11 years.
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