How to Roll Over a 401k While Still Working

Retirement plan documents.
Image Credit: Ryan Fox/iStock/Getty Images

Rolling over a 401k is relatively simple when leaving a job, but you may be wondering if it can be done while you are still working for the same employer. At first glance, it may seem impossible to move your 401k funds into another type of account, such as an IRA. Fortunately, it may be possible. Rolling over an active 401k depends on whether you can meet certain loophole requirements. Be advised that 401k plans differ, so this scenario may not work for every person.

Step 1

Understand what the law says about 401k retirement plans. According to federal law, you cannot withdraw 401k contributions before leaving a job, or prior to the age of 59 1/2. It is also important to note that an employee's 401k contributions are taken out before taxes and are subject to taxation if withdrawn before age 59 1/2.

Step 2

Meet the requirements. The highest rate of success in rolling over your 401k while still employed is to be at least 60 years old. About 70 percent of plan providers allow this option. You may be able to roll over your 401k if you are younger than 59 1/2, but only 16 percent of plan providers are willing to allow this option to its participants.

Step 3

Decide what to do with your 401k fund. For the majority of those looking to roll over their current 401k, the decision is based on having more autonomy on investments. You may not be happy with the investment choices of your 401k plan provider. Before beginning the process of roll over, you need to know the fund's ultimate destination. Determine if you want to roll it over into a traditional IRA or a Roth IRA.

Step 4

Set up an individual retirement account, also known as an IRA. The two most popular IRAs are traditional and Roth. The difference between traditional and Roth is when you are taxed. With traditional IRAs, you are taxed upon withdrawal. With Roth IRAs, you are taxed upfront for your contributions. Recent trends favor Roth IRAs because taxes are based on your initial contribution, not your final accumulation. You can set up your IRA account online.

Step 5

Contact your 401k plan provider to inquire about the possibility of rolling over your 401k fund. If you are unsure of how to reach your plan provider, access their number through your company's Human Resources department. When you reach your plan provider, ask them if they offer an "In-Service 401k rollover." Not all companies offer this option.

Tip

Be sure to research several investment firms before settling on one to take care of your IRA account. Never underestimate the power of a good reputation.

Warning

If you rollover your 401k to an IRA account and plan to retire before age 59 1/2, you will be penalized. Unlike 401k plans, which allow you to withdraw penalty-free if you retire at 55, you will be unable to avoid taxation with an IRA. Consider your retirement age before embarking on rolling over your 401k to an IRA.

references