Maybe you are thinking you want to get some of your money out of your 401k before retirement?
You have some investment ideas of your own?
Maybe you need to fund a college education, or just maybe you need a new hot water heater.
Here’s a little known secret about 401ks, that mutual fund companies hate. It’s called an in-service withdrawal.
The in-service withdrawal allows you to make a withdrawal of your 401k money and do a tax-free direct rollover to your personal IRA. From there you can do what ever you need to do. Of course, you must follow all of the dozens of penalties and rules regarding withdrawals on IRAs.
But here is the rub…
The mutual fund companies hate the in-service withdrawal because when you take your money out, they lose the fees they are skimming. So in most company 401k plans, there is no in-service withdrawal feature. You don’t have, what the tax laws allow.
How does that happen you ask?
When a company sets up a 401k, the company who sponsors the plan has what’s called a plan document.
This specifies the features of the plan. Large mutual fund families generally do not put the in-service withdrawal feature into their plan documents for the reason stated above.
If you think this practice of not allowing you to have the in-service withdrawal in your company plan is wrong, talk to your employer. It’s quite possible they are as fed up as you are.
More and more employers are actually considering dropping the 401k all together just because of the liability.