An In-Service Rollover is a financial strategy that allows active employees to transfer funds from their employer-sponsored retirement plan—typically a 401(k), 403(b), or some 457(b) plans—into an Individual Retirement Account (IRA) or another qualified retirement plan without terminating their employment. This option is designed to provide more control over investment choices, reduce fees, and consolidate retirement savings.
How an In-Service Rollover Works
If your employer’s plan permits In-Service Rollovers, you can move all or part of your vested balance directly into an IRA or another employer plan. The rollover preserves the tax-deferred status of your retirement funds, so the transfer does not trigger income taxes or early withdrawal penalties. To initiate the rollover, contact your plan administrator or human resources department to understand the specific rules, eligibility criteria, and timelines.
Who Can Use In-Service Rollovers?
Eligibility depends on your plan’s terms. Many plans restrict In-Service Rollovers based on age or years of service. The Internal Revenue Service (IRS) commonly allows rollovers for participants aged 59½ or older without penalty, but some plans extend this option to younger employees or set different service requirements. Additionally, only vested funds—those you fully own—can be rolled over; unvested contributions generally remain in the plan until vested.
Benefits of an In-Service Rollover
- Broader Investment Options: IRAs typically offer a wider range of investments, including various mutual funds, ETFs, and individual securities, compared to employer plans that may have limited selections.
- Potential Fee Savings: IRAs can have lower administrative fees than some employer plans, reducing the cost drag on your retirement savings.
- Account Consolidation: Rolling over funds into one IRA can simplify managing your retirement accounts, especially if you have multiple 401(k)s from previous employers.
- Increased Flexibility: IRAs often provide more flexible withdrawal options and do not require distributions until age 73, unlike some employer plans.
Important Considerations
Every employer plan has unique rules about if and when you can do an In-Service Rollover. While most rollovers maintain the tax-advantaged status of your funds, be cautious about opting for a distribution instead of a proper rollover, as that could create taxable income and early withdrawal penalties if you are under age 59½.
Common Misunderstandings
- Not All Plans Allow It: Many 401(k)s do not permit In-Service Rollovers or limit them to participants over a certain age or tenure.
- Only Vested Money Is Eligible: Unvested employer contributions cannot be rolled over.
- Rollovers Are Different From Withdrawals: Direct withdrawals outside of a rollover will likely trigger taxes and penalties.
- IRAs May Have Fees Too: Don’t assume an IRA automatically costs less; compare investment expenses and account fees.
Real-World Examples
- Emily, 45, utilizes an In-Service Rollover to move her 401(k) funds to an IRA offering a broader selection of mutual funds and exchange-traded funds (ETFs), lowering fees.
- Mark, 50, takes advantage of his plan’s age 50-plus provision to roll over part of his vested 401(k) balance to an IRA, gaining more flexibility in planning retirement income.
Frequently Asked Questions
Q: Is an In-Service Rollover the same as a regular rollover?
A: No. Regular rollovers typically occur after you leave your job. In contrast, In-Service Rollovers happen while you remain employed.
Q: Can I roll over after-tax contributions?
A: It depends on your plan’s rules. Some allow rolling over after-tax amounts to a Roth IRA, but confirm this with your plan administrator.
Q: Does an In-Service Rollover affect my 401(k) loan?
A: Typically, no. Loans remain in your employer’s plan until repaid or your employment ends.
Q: Are In-Service Rollovers available for all types of retirement plans?
A: They are most common with 401(k), 403(b), and some 457(b) plans, but not all plans offer this option.
Summary Table: Key Facts About In-Service Rollovers
| Feature | Details |
|---|---|
| Allowed While Employed | Yes |
| Common Plans | 401(k), 403(b), some 457(b) |
| Age Restrictions | Often 59½ and up; varies by plan |
| Taxes | None if rolled over properly |
| Investment Options | Generally broader in IRAs |
| Vesting Required | Only vested funds eligible |
| Benefits | More control, fee savings, flexibility |
For more information on Individual Retirement Accounts, see our article on Individual Retirement Account (IRA). To understand how rollovers work more broadly, visit 401(k) Rollover.
For official IRS guidance, refer to the IRS Rollover of Retirement Plan and IRA Distributions.
By carefully checking your plan’s policies and comparing options, an In-Service Rollover can be a valuable tool for optimizing your retirement savings without disrupting your employment.
