How to Roll Over a 401(k) While Still Working

You delay paying taxes when you roll 401(k) money into an IRA.

You delay paying taxes when you roll 401(k) money into an IRA.

You can use your company's 401(k) plan to help build a sizable retirement nest egg. Generally, 401(k) plans consist of money set aside until retirement, and you can't access your money while working unless you experience some kind of financial hardship. However, you can get access to your account to roll the money into another type of retirement account.


Workers deposit cash into a 401(k) on a pretax basis through payroll deductions, and once inside the account the money grows tax deferred. You don't have to pay taxes on your initial investment or your earnings until you make a withdrawal. Some employers make matching contributions, which means you can effectively double some of your contributions just by enrolling in the plan. You pay a 10 percent tax penalty if you make withdrawals before reaching the age of 59 1/2, and you pay this fee in addition to ordinary income tax.


Individual Retirement Accounts are subject to the same withdrawal rules as 401(k) plans. This means you continue to shelter your cash from taxes when you roll your money into a 401(k) plan. You can roll over your money when you leave your job, but you can also move money while still employed by making an in-service withdrawal. However, although the Internal Revenue Service allows in-service withdrawals it doesn't require companies to include provisions for these withdrawals in 401(k) plans. Simply put, your employer controls your ability to roll over your 401(k) cash.


If your plan allows for in-service withdrawals then you can roll over your entire account balance once you reach the age of 59 1/2. Prior to that age, you can roll over cash that you invested into the account and your account earnings. You can't roll over your employers' matching contributions. You can roll over cash from your current 401(k) that you previously rolled into that account from a plan held with another employer. When you roll over previously rolled over money, you can even roll over the cash that your former employer deposited into your account.


You often have to pay commissions known as loads when you buy mutual funds. You also pay annual fees that cover the fund's operating costs. If you move 401(k) cash into mutual funds in an IRA you may still have to pay these fees. However, you avoid paying the fees that cover the costs of the investment firm that administers your 401(k) account. You save money by eliminating the middle man. Not only that, but you can use IRA cash to buy certificates of deposits, annuities, real estate contracts and a number of other investments that aren't usually found within 401(k) accounts.


About the Author

Ciaran John began writing in 1994 with contributions to "The Hourly Press" and "The Sawbridgeworth Observer," and has since written for many online and print publications. He has 12 years experience working for financial services companies as a business banker, lender and investment representative and spent four years working in human resources.

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