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Transfer 401k to IRA While Still Employed

Dan Westfall

Dan Westfall

Transfer 401k to IRA While Still Employed

I often get the question; can I transfer my current employer 401k plan into an IRA? The answer is yes, you can transfer 401k to IRA while still employed. However, there is an age requirement of being at least 59.5 years old. Most 401k plans allow for this option called an in-service distribution or in-service rollover.

Can You Transfer a 401(k) to an IRA While Still Employed?

The reason you can transfer a 401(k) to an IRA while still employed with most plans is because someone that is 59.5+ years old is usually getting very close to retirement. The powers that be wanted to allow these people the ability to diversify more by using an IRA, which is often cheaper than 401k plans. It also allows for thousands more investment options than a typical 401k plan that has 10-20 investment options available.

Reasons to complete an In-Service Rollover:

    1. Can You Transfer a 401k to an IRA While Still EmployedDiversification of Investment Options and Strategies
      Retirement plans, like 401(k)s, are typically limited to 10-20 investment options. This can leave few choices but to have money invested in a fund or strategy that just isn’t the best for that person’s needs and goals. In an IRA, you can invest that money in just about anything, from publicly traded investment, non-publicly traded investment to alternative investments like real estate. Typically, someone that’s older than the 59.5 year old threshold has the most amount of money they’ve ever had in their life. If they have a normal retirement age in their 60s, then this is a pivotal time for their investment portfolio.
    2. Eliminate or Reduce Fees
      As mentioned above, 401k plans have layers of fees within the plan. There are typically administrative fees, management fees, and fund fees. In an IRA, those fees can all be eliminated or drastically reduced.
    3. Investment Management Help
      As an investment manager, there is not a lot of extra value I can provide when it comes to managing a 401k plan with 10-20 options other than to look at the costs of the funds. The huge value of a good investment manager is being able to help make changes to a client’s portfolio as markets fluctuate over time. In a 401k plan, with 10-20 fund options there just aren’t the tools available to make the necessary changes. An IRA allows an investment manager the option to implement and manage just about any investment strategy out there.

In-Service Rollover and In-Service Distribution FAQ

How to complete an Inservice Rollover?

The process to rollover a 401k plan, if you’re still working, is the same as if you were no longer working. The plan participant would need to open an IRA and then contact the company of the current plan to have the rollover check sent for the balance to the IRA. An investment manager or financial planner could also assist in this process.

Does it affect the matching contribution?

A common question I’m asked when I’m helping a client through this process is what about the match. Doing an In-Service Rollover doesn’t affect the match of your future contributions. The company will still be matching you the same amount based on the contributions you make into the plan. Always make sure to get the full match!

What are the costs to Transfer 401k to IRA?

In-Service Rollover and In-Service DistributionThis is not a taxable event, so there are no tax implications as long as you have the check made out to the new brokerage FBO (for benefit of) you and not directly made out to you. There is typically little or no costs to process the rollover. Costs are typically less than $100 for administrative fees, if anything at all.


The benefit of doing an in-service rollover can add 1+ percent back to your portfolio each year. If you’re 59.5 years of age or older and still working, that can mean thousands of dollars a year added to your nest egg. You work hard for your money. Make your money work hard for you!

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