Does an In-Service 401(k) Rollover make sense in my case?

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dct1970
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Joined: Fri Mar 13, 2015 2:54 pm

Does an In-Service 401(k) Rollover make sense in my case?

Post by dct1970 » Fri Feb 03, 2017 12:36 am

When I started working for my current employer 11 years ago, I rolled my former 401(k) into my new 401(k). I was not on board with Vanguard and Bogle and Indexing at that time. Since I've been enlightened, I strongly regret that decision and thought I'd just have to live with it. But just this week I found out that my current 401(k) allows "In-Service" 401(k) rollovers. I've got to study the SPD more closely and ask some clarifying questions but, at this time, it appears that I can do this rollover to a personal Traditional IRA with no tax or penalty implications and would only pay a transaction processing fee [need to find out exactly how much that is].

I'm 47-years-old and I try to approximate Vanguard Target Retirement 2035 Fund (VTTHX) across all my investments.

My current holdings are as follows:
* 401(k) - 69% of total portfolio...all in VINIX
* Roth IRA (funding to max amount each year) - 7% of total...all in VTIAX
* Traditional IRA (not funding) - 24% of total...spread across VTIAX, VBTLX and VTABX to finish out approximation of VTTHX

Right now [and probably for a few more years] I can approximate VTTHX with the above. But eventually I'll be too heavily weighted in domestic stocks [VINIX] with no good diversification options inside the 401(k).

So my thought is I would roll 50% [75%? 80%? 90%?] of my 401(k) out to my Traditional IRA into Total Stock Market. That will allow me to better approximate VTTHX as time goes on.

I look forward to your feedback.

123
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Re: Does an In-Service 401(k) Rollover make sense in my case?

Post by 123 » Fri Feb 03, 2017 12:43 am

"In-service" 401K rollovers are usually limited to employees that have attained age 59.5 (or more) years of age at the time of the rollover. So at age 47 you will probably have to wait awhile.
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zenghaidong
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Re: Does an In-Service 401(k) Rollover make sense in my case?

Post by zenghaidong » Fri Feb 03, 2017 12:48 am

I believe you can "in-service" rollover traditional 401k to Roth 401k under the some provider.
You should also be able to rollover previous 401k to IRA.
123 wrote:"In-service" 401K rollovers are usually limited to employees that have attained age 59.5 (or more) years of age at the time of the rollover. So at age 47 you will probably have to wait awhile.

Spirit Rider
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Re: Does an In-Service 401(k) Rollover make sense in my case?

Post by Spirit Rider » Fri Feb 03, 2017 11:59 pm

IRS regulations do not permit the in-service rollover of employee deferrals to your current employer's plan prior to age 59.5.

However, subject to plan provisions, a plan can but is not required to allow the in-service rollover of one or more of the follow. Amounts rolled into the plan, after-tax contributions, vested employer contributions and all of their associated earnings prior to age 59.5.

retiredjg
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Re: Does an In-Service 401(k) Rollover make sense in my case?

Post by retiredjg » Sat Feb 04, 2017 8:45 pm

Agree with Spirit Rider. A plan can, but does not have to, allow an in-service rollover of certain parts of your 401k plan prior to age 59.5.

Your elective deferrals (the $18k you contribute each year if you can) are NOT part of what can be rolled over prior to 59.5 while you are still working there. Most everything else might be "rollable", but every plan is different. Some allow one thing but not the other. Some allow all.
But just this week I found out that my current 401(k) allows "In-Service" 401(k) rollovers.
Your question now has to be "in-service rollover of what?" It could be one or two of several different things. Or it could be all of the several different things.

Your Summary Plan Description is the first place to look for this information. One thing to watch for..."employee contributions" might not mean what you think. Your $18k a year is not called "employee contribution", but is called "elective deferrals". "Employee contributions" should mean contributions to an after-tax account. An after-tax account is not the same as Roth 401k. An after-tax account is often "rollable" while still in-service.

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Earl Lemongrab
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Re: Does an In-Service 401(k) Rollover make sense in my case?

Post by Earl Lemongrab » Sun Feb 05, 2017 2:26 pm

Agree with the various posts above. The regulations prohibit rolling your deferrals or Roth contributions before a "qualifying event", but others are possible depending on plan rules. MegaCorp allows rollover contributions, after-tax, and company matching (but penalizes you) to be rolled out.
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dct1970
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Re: Does an In-Service 401(k) Rollover make sense in my case?

Post by dct1970 » Wed Mar 01, 2017 7:58 am

Thanks for all the replies. Reading the SPD and asking more questions clarified that my Plan tracked "rolled-in" funds separately from "employee contributions" and "employer match". Such "rolled-in" funds [plus growth over time] can be rolled out of my Plan, regardless of age, at any time to another qualified Plan. What a blessing that is!! This week that rollover amount is now reflected in my Vanguard Rollover IRA and I, thus, can control it more to my liking. I'm so happy about that!

So if anyone made the mistake I did of rolling a previous 401(k) into a current 401(k), it would be worth you time to ask if that current Plan will allow what my plan does.

Thanks!

ved
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Re: Does an In-Service 401(k) Rollover make sense in my case?

Post by ved » Wed Mar 01, 2017 10:36 am

If your AGI is above ~$184k (not sure about the exact $ figure), then you will not be able to contribute to Roth IRA annually. You could do achieve the same result by going through the "back-door" Roth IRA. However, having any type of traditional IRA will make the back-door very cumbersome to being non-practical.

So, if you expect your AGI to get to the ~$184k limit now or in the future, you should try to avoid having traditional IRAs.

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