Dear Dr. Don,
At 59 1/2 years old, I'm about six years away from retirement. I have a company 401(k) plan, but I'd like more flexibility with my funds for investing and withdrawals. Can I have my current 401(k) rolled over to my existing brokerage account? What would be the tax consequences of such a change?
-- Ned New-Account
Without ending your employment, the question whether you can move these funds out of your employer's 401(k) plan is really answered and controlled by the plan document.
Such 401(k) plan distributions, or withdrawals, are permitted by law after age 59 1/2 while one remains employed. The fancy name for this is "in-service distributions." But plans aren't required to offer these in-service distributions. Similarly, firms offering 401(k) plans may decide whether to offer plan loans to employees. Check the plan document or the summary plan description to see whether such in-service distributions are available under your employer's plan.
Distributions trigger a tax obligation on tax-deferred compensation and investment earnings. Since you're over age 59 1/2, the 10 percent tax penalty would not apply. You would still have to pay the income taxes.
Direct transfers into another tax-deferred retirement account, like a rollover into a traditional IRA, if allowed, would keep the money tax-deferred. It would also allow you to choose a custodian with investment choices you want.
You could also ask your employer for additional investment choices. One note of caution: If your goal is to start day-trading your retirement portfolio, I'd advise against it. Very few can avoid losing money with that approach.
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