In service 401k rollover eligibility question.

[andy8921]

A colleague of mine has a 401k with John Hancock and a balance just under $1,000,000. The fund choices have recently changed and not for the better, as all the available funds have expense ratios approaching 1% or higher. He is therefore paying close to $10,000 a year in fees and expense ratios. In addition, his lousy employer eliminated the company match approximately two years ago. I brought up the idea of doing a rollover to an IRA to have access to better fund choices with lower expense ratios, but after doing some research, I am not sure this is allowed. Is it possible to do an in service 401k rollover without penalty to an IRA at Vanguard or Fidelity while he is still employed with this company? If so, can he continue to contribute to the 401k after the rollover is completed? My friend is under 59 1/2 years of age. Thank you in advance for your help.

[renter]

How big is the company? Your friend could lobby to move the 401k to Vanguard. Thats what I did at my company successfully (but it took several years). Or see if they can add one or two relatively low cost index funds. Our old over-priced 401k plan had an s&p 500 index fund with an e/r of 0.59%. All other funds, "the best in class" they claimed, were way higher, so the sp500 fund was what I used exclusively.

[123]

... Is it possible to do an in service 401k rollover without penalty to an IRA at Vanguard or Fidelity while he is still employed with this company? If so, can he continue to contribute to the 401k after the rollover is completed? My friend is under 59 1/2 years of age. Thank you in advance for your help.

IRS rules require that, if a plan allows in-service rollovers, that they are restricted to plan participants 59 1/2 years of age or older. To find out if the plan allows in-service rollovers he should ask the employer. The information should be available in the complete plan description document as well. John Hancock might not be forthcoming about in-service rollovers since they lose assets (and revenue) when they are executed.

[Spirit Rider]

The IRS prohibits the in-service rollover of employee deferrals prior to age 59 1/2. The IRS allows but does not require the rollover of vested employer contributions prior to age 59 1/2.

Many plans place restrictions on in-service rollovers of vested employer contributions prior to age 59 1/2. The friend will need to determine if the plan will allow in-service distribution of vested employer contributions prior to age 59 1/2.

[123]

Some years ago I did a rollover from a former employer's 401K plan to that of my current employer. At the time I did that rollover our HR department told me that if I subsequently wanted to roll those funds back out of the 401K plan I could, they would not be subject to the age 59 1/2 in-service rollover restriction. The amount that I rolled over was small so the issue of rolling it back out has never come up. If your colleague's account includes rollover he may want to consider the plan's rules pertaining to that. I don't know if any rollout would include earnings/growth or be limited to the initial rollover amout received. I get the impression that there are often many more sub-accounts and tracking features used to manage 401K accounts than are apparent from the periodic statements that are issued. YMMV.

[2tall4economy]

If any of the contributions were after tax (not Roth contributions, after tax contributions) and or portions of roll overs were and the employer plan allows in service roll overs then you can transfer that portion without penalty. This is how the mega backdoor 401k was born.

[Spirit Rider]

If your colleague's account includes rollover he may want to consider the plan's rules pertaining to that. I don't know if any rollout would include earnings/growth or be limited to the initial rollover amout received.

The distributable nature of a particular contribution type always extends to the earnings.

[ruralavalon]

A colleague of mine has a 401k with John Hancock and a balance just under $1,000,000. The fund choices have recently changed and not for the better, as all the available funds have expense ratios approaching 1% or higher. He is therefore paying close to $10,000 a year in fees and expense ratios. In addition, his lousy employer eliminated the company match approximately two years ago. I brought up the idea of doing a rollover to an IRA to have access to better fund choices with lower expense ratios, but after doing some research, I am not sure this is allowed. Is it possible to do an in service 401k rollover without penalty to an IRA at Vanguard or Fidelity while he is still employed with this company? If so, can he continue to contribute to the 401k after the rollover is completed? My friend is under 59 1/2 years of age. Thank you in advance for your help.

That is possible without penalty only if both (1) the plan participant is over 59.5 years of age and (2) the employer's plan specifically permits a non-hardship in-service rollover.

IRS, "401(k) Resource Guide - Plan Participants - General Distribution Rules", link.

[andy8921]

Thanks to everyone that replied. He will be calling JHNY to see if the plan allows in service 401k rollovers for the employer contributions.