Can I roll over 401k funds while still employed?

[livnlow]

I've been putting 25% (of $50,000.00)in my 401k. I recently upped it to 43% to max it out for 2006. Will drop it to 30% starting January 2007 to keep it maxed. The problem is, doing some quick math shows that my funds are costing me about $7000.00+ per year currently compared to what I could get on my own. I don't even want to figure out what that will mean long term. Is it possible to get money rolled out of a plan without quitting my j*b? I was told years ago, that it was up to the plan administrator, but I can't find anything now doing a search. If it is possible and any of you have done it, I would love to hear about your experience. I am considering quitting and trying to come back on a contract basis, but I'm not prepared to do that yet.

[Martha]

You can't roll it over into an IRA unless you have a qualifying event. Termination of service is one qualifying event. So is reaching age 59.5.

401ks info:

http://www.irs.gov/publications/p575/index.html

And IRAs:

http://www.irs.gov/publications/p590/index.html

[livnlow]

Thanks for the links Martha. I read them, but did not see (or understand) anything that would keep me from doing a rollover. I just did a google search for "401k law" and found these links:

http://www.irs.gov/taxtopics/tc424.html
http://www.irs.gov/taxtopics/tc413.html

From the second link:
If a distribution is paid to you, you have 60 days from the date you receive it to roll it over. Any taxable distribution paid to you is subject to a mandatory withholding of 20%, even if you intend to roll it over later. If you do roll it over, and want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld. You can choose to have your employer transfer a distribution directly to another eligible plan or to an IRA. Under this option, the 20% mandatory withholding does not apply. If you are under age 59 1/2 at the time of the distribution, any taxable portion not rolled over may be subject to a 10% additional tax on early distributions. Certain distributions from a SIMPLE IRA will be subject to a 25% additional tax.

While they don't specifically mention 401k, it apears that is one of the plans they are referring to. Am I overlooking something?

[Baxter]

The short answer is no, you can't. Some plans allow you to take out loans, but otherwise you're stuck until you leave or reach the government-defined retirement age.

My former employer had a really expensive 401K plan, with expense ratios in excess of 1.5% for the S&P 500 index fund and around 2.5% to 3% for the actively managed funds. I already had 6 years worth of contributions in the plan before I found that out (the information was hidden from the participants, unless you were extremely diligent in your search for additional fees). I searched far and wide for a way to get my money out of the plan and failed, so I stopped contributing until I knew I was going to leave.

[livnlow]

Baxter, was it the IRS or your 401k administrator that would not allow you to remove funds? I am hoping to find out if there is actually an IRS (maybe DOL?) regulation stating that money cannot be rolled over. If that regulation does not exist, I will find out if the problem is with the plan administrator.

As you found out, that is a horrible position to be in. Glad you got out. How did you end up finding out what the actual fees were? My FA says she does not charge any fees, but she is getting paid somehow. I have a feeling I have lots of hidden fees like your old plan did.

[youbet]

livnlow,

You can take the money as a distribution but will pay a 10% penalty. You cannot, as Martha stated, move it to a rollover ira without a qualifying event. Call Vanguard, Fidelity, Schwab, etc., and ask if they will open a rollover account for you and accept funds from your 401K. They will explain that they can't.

[Martha]

Hum. Hum. I am thinking of backtracking a bit on my answer. I have never seen or heard of a plan that allowed rollover distributions before age 59.5, death, or termination of employment. But I wonder if that is a general plan provision or a regulation. Now that I look through pubs 575 and 590, the answer isn't so clear. If I am motivated, I may read the regs tomorrow. Nevertheless, odds are the plan doesn't allow such a rollover. Every summary plan description I have read doesn't allow it.

[youbet]

Quote:

Originally Posted by Martha Every summary plan description I have read doesn't allow it.

Just as important, you have to get someone to accept it.

[Martha]

Quote:

Originally Posted by youbet Just as important, you have to get someone to accept it.

Youbet cha.

[samclem]

Quote:

Originally Posted by youbet livnlow, . . . You cannot, as Martha stated, move it to a rollover ira without a qualifying event. Call Vanguard, Fidelity, Schwab, etc., and ask if they will open a rollover account for you and accept funds from your 401K. They will explain that they can't.

youbet,
-- What is a "rollover IRA." Wouldn't you just open a conventional (non-Roth) IRA (which any of these companies would allow)? Of course, this still address the big question of whether you can get your present 401k to release the funds without a "qualifying event."

[livnlow]

youbet, does that mean I can take out $100,000.00 minus the 20% withholding, fund the $20,000.00 out of my own pocket so there is not a taxable event, and still owe the 10% penalty?

Are quitting and retiring the only qualifying events?

[livnlow]

Quote:

Originally Posted by youbet Just as important, you have to get someone to accept it.

Yeah, but I'd know where to start.

[Martha]

Quote:

Originally Posted by samclem youbet, -- What is a "rollover IRA." Wouldn't you just open a conventional (non-Roth) IRA (which any of these companies would allow)? Of course, this still address the big question of whether you can get your present 401k to release the funds without a "qualifying event."

Rollover IRA---conventional IRA. Same difference.

Quote:

Originally Posted by livnlow Are quitting and retiring the only qualifying events?

No, the plans I have read also provide that reaching 59.5 is also a qualifying event. This is also the age where you can begin to take distributions from a 401k without payment of a penalty.

Quote:

Originally Posted by livnlow Yeah, but I'd know where to start.

The place to start is reading your summary plan description.

You might also post your question to either the Fairmark Forum or Ed Slott's forum. See www.fairmark.com and www.irahelp.com.

[livnlow]

Quote:

Originally Posted by Martha The place to start is reading your summary plan description. You might also post your question to either the Fairmark Forum or Ed Slott's forum. See www.fairmark.com and www.irahelp.com.

Thanks Martha. I'm going to dig up my copy.

[fluffy]

My company's 401k plan until recently allowed for unlimited selling and rolling over (to IRA) of the company stock match. This option was never advertised and I learned of it by accident from Fidelity advisor. It seems to have been tightened now with a cap of how much company stock match one could sell.

My plan also allows for partial rollovers after the age of 59.5. So it's definitely worth checking out your summary plan description and/or contacing your HR/plan admin to see exactly what options are available to you.

[youbet]

Quote:

Originally Posted by samclem youbet, -- What is a "rollover IRA." Wouldn't you just open a conventional (non-Roth) IRA (which any of these companies would allow)?

As Martha stated, a rollover IRA is really just another regular IRA. But, for example, Vanguard and Schwab suggest you to open a separate IRA for your rollover in addition to the regular IRA you already have open with them. This ensures pretax and post tax dollars are kept separate and there is no confusion when you have an IRA contribution exceding the normal yearly limit the year you roll the big bux from the 401K in. It's voluntary. Just did this for DW and we chose to do a separate IRA for her rollover, although I have clear records on amounts of pre and post tax dollars that are in her already established IRA and there would have been no confusion for us. Whatever.......... I suspect when you contact your brokerage they will suggest a separate IRA account for the rollover and they will refer to it as a "rollover" IRA.

The issue is not opening an IRA with them. The issue is xferring big bux, way beyond the normal contribution limit, into the IRA in a single year.

If you need more than this, just pick up the phone and call Schwab. They answer questions like this 24 x 7.

[livnlow]

I just read my Summary Plan Description, and it lists the specific situations in which I can recieve vested benefits. They do not make a statement anywhere that leads me to believe I cannot rollover funds. Interestingly. the words cannot, can't, will not, won't, no, none, not, never, etc. do not even appear in this section in regards to disbursment and rollover of funds. It specifically only mentions ways I can remove money. No idea if that means anything though.

[livnlow]

Quote:

Originally Posted by fluffy My company's 401k plan until recently allowed for unlimited selling and rolling over (to IRA) of the company stock match. This option was never advertised and I learned of it by accident from Fidelity advisor. It seems to have been tightened now with a cap of how much company stock match one could sell. My plan also allows for partial rollovers after the age of 59.5. So it's definitely worth checking out your summary plan description and/or contacing your HR/plan admin to see exactly what options are available to you.

fluffy,
Thanks for sharing your experience. This is axactly the kind of information I am looking for. It seems like there is quite a lot of freedom in how a company writes up thier 401k rules. I have decided not to ask my plan administrator until I understand what I'm dealing with. I do not trust that she would get the correct answer from her source, which is my FA.

[riskadverse]

I changed my company 401K to a rollover IRA when the company changed ownership and then rolled a portion back into the 401K when the new company changed 401K administrators. Not sure if either of these cases could apply, but if you see any change in either the company ownership or the 401K administrator start exploring their policies.

[Baxter]

Quote:

Originally Posted by livnlow Baxter, was it the IRS or your 401k administrator that would not allow you to remove funds? I am hoping to find out if there is actually an IRS (maybe DOL?) regulation stating that money cannot be rolled over. If that regulation does not exist, I will find out if the problem is with the plan administrator.

That is a good question and I don't remember enough details to give you a complete answer. For sure, the 401K administrator told me that short of leaving there was no way to roll over the funds. I considered withdrawing the money, paying the penalty, then investing it in taxable accounts, but given that I didn't plan to stay there forever it worked out that it was better to just leave it there for a few more years until I decided to leave. Out of spite I did stop my contributions until this year, when I did a huge "catch-up" contribution to hit this year's limit before I quit.

I toyed with the idea of asking them to lay me off and then re-hire me, but that would have messed up my stock options and vacation time.

Quote:

As you found out, that is a horrible position to be in. Glad you got out. How did you end up finding out what the actual fees were? My FA says she does not charge any fees, but she is getting paid somehow. I have a feeling I have lots of hidden fees like your old plan did.

Our 401K administrator came to the office and told us our accounts would be charged one dollar per person per year for administrative fees. Several of us were incredulous and asked how they got paid, and IIRC they claimed the fund companies gave them part of the expense ratios.

A long time later I was trying to figure out why their S&P 500 fund lagged the index by about one and a half percent, and stumbled across some fine print in a PDF on their web site with the fees they added to the expense ratios. None of my co-workers had seen that. I think it was buried in the plan's paperwork which got rubber-stamped by my employer.

Unfortunately it was considered unimportant by management. They liked the plan administrator and they were comfortable with the arrangement. I got the idea they felt I was just stirring up trouble by looking into this. What I learned, was that some people don't mind paying exorbitant fees (and making others pay those same fees) if they can avoid change.