Is an In-Service Rollover right for me?

Spring Has Sprung.  The experts will tell you that springtime began on March 20th for those of us who live in the Northern Hemisphere. That’s the day each spring when the Sun shines directly on the equator and the day is evenly divided between day time and night time. Another way to think of this day, technically known as the Vernal (or Spring) Equinox, is that it’s the halfway point on the calendar between the Winter Solstice in December, the year’s “shortest” day (in terms of daylight), and the Summer Solstice in June, the year’s “longest” day. I’m sure astronomers and meteorologists would take issue with those definitions not being technical enough, but the main point is that spring means we’re closer to the summer ahead than we are to the winter behind us, and the change of season is surely in the air this time around.

Speaking of change, one of the things I enjoy most about my job is talking to people pretty much every day about the change going on in their lives. Since we work with so many airline pilot families in all stages of their careers, those changes can involve the “personal side,” like seeing one of their children graduate from college, or get married, or hold their own baby for the first time. Those changes can also involve the “business side” of things too, like changing bases or equipment, or preparing for that upcoming PC, or even beginning preparation for retirement and the next stage of life, after all of those years of “flying the line.”

Believe it or not, federal law actually provides a way for this transition to retirement to be a little easier. Most people are not aware that the majority of employer-provided qualified retirement plans, like 401ks and 403bs, at larger companies permit employee participants to transfer a portion of their retirement plan assets out of the company’s retirement plan and over into an Individual Retirement Account (IRA) at and after they reach age of 59 ½. This method of transfer, or rollover, from the company plan to an IRA is known as an In-Service Rollover (or ISR). This transfer can be completed while you are still working for your employer and while you continue to participate in your employer-provided retirement plan. That’s why it’s called an “in-service” rollover – you are still “in service,” or working, for the company. Each retirement plan has specific rules and processes, but typically, this transfer can include most, if not all of your 401k balance.

A reader may ask: “Why should I elect to transfer my company 401(k) plan balance to an IRA via an In-Service Rollover (ISR)?” Well, there are many reasons to utilize the ISR option provided for in your company’s 401(k) plan. Here are just a few of the most common.

More Control & Flexibility of Your Retirement Assets. While your money is in the company 401k plan, you are limited by the rules of your employer’s plan. In an IRA, you’ll have more control of that money. You’ll also have the flexibility of deciding which IRA custodian to work with. Fidelity Investments, Charles Schwab, and TD Ameritrade are a few of the largest, most reputable IRA custodians, but there are several others to choose from, including most major U.S. banks. Your company’s 401k plan administrator is required to manage the plan in the best interests of the plan participants as a whole. In an IRA, you are able to decide what’s in your best interest and customize the account according to your specific needs.

Better Investment Choices. In your 401k plan account, you’re limited to the investment choices picked for you as options by the plan administrator. In an IRA, you’ll have access to a much larger universe of investment options; which would include individual stocks, bonds, exchange-traded funds (ETF’s), separately managed accounts, as well as a much wider array of mutual fund options.

Reduced Costs. In the IRA, you’ll have the ability to select investment choices that may have lower internal costs than the choices provided in your employer’s retirement plan. Typically, the total costs to the participant in the employer’s plan are difficult to determine, and these costs are imbedded into the operational expenses of the investment choices which are not directly paid by the participant, even though they can reduce the performance of the investments. In an IRA, the costs can be more transparent and much less opaque.

Simplification of Service. Many retirement plan participants are frustrated by having to deal with the custodian or plan administrator of the 401k plan they participate in. Let’s face it – from their point of view, you’re a captive client. These frustrations materialize with service issues in regard to changing investment choices, securing passwords for online login, and requests involving reporting issues when you’re trying to determine how the assets have performed. In an effort to cut costs, many 401k custodians have reduced their service departments which means getting adequate service from them can often be problematic.

Ability to Hire & Pay for Professional Management. With an IRA, you have the ability to hire a professional advisor to help you with your investment decisions, which may include utilizing risk controls in your portfolio. These controls often involve proactive trading – a feature a lot of investors want, especially in retirement. In addition to you allowing an advisor to have access to the IRA, you’ll usually be able to pay that advisor for services rendered directly from the IRA. This direct payment of management fees from your IRA can eliminate the need to write a check or to provide a credit card number for the payment of investment management services.

Once you’ve decided an In-Service Rollover is probably the right option for you, there are 3 simple steps to initiate the In-Service Rollover (ISR) process and begin taking control of your retirement assets. Those 3 steps are:

  1. Determine your eligibility for an ISR and the amount (percentage) your Company’s plan would allow you to transfer from your company 401k plan account to an IRA via an ISR. If your 401k plan allows for an ISR transfer, they’ll have a process to put into action.
  2. Set up an Individual Retirement Account (IRA) with a custodian of your choosing to be the recipient account of your 401k In-Service Rollover.
  3. Once the IRA is set up and active, request and complete the rollover distribution paperwork as required by your employer’s retirement plan administrator.