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A 401(k) in-service distribution, explained

April 01, 2018

Every week, Simply Money’s Nathan Bachrach, Ed Finke and Amy Wagner are answering your financial questions in The Cincinnati Enquirer. If you, a friend, or someone in your family has a money issue or problem, please feel free to send those questions to yourmoney@enquirer.com

 

James in Sayler Park: I’m 58 and just learned that my company allows for a 401(k) in-service distribution at age 59 1/2. Is this something you recommend doing? 

Answer: An in-service distribution gives you the ability to roll over a portion of your current 401(k) into an IRA before you retire from your current employer. Most of these plans only let you take in-service distributions when you’re nearing retirement, you’re disabled, or, as you mentioned, you’re age 59 ½. 

Every 401(k) plan has different requirements you need to be aware of, so you want to first speak with your Human Resources department before moving forward with any transactions. You want to fully understand your plan so you can make an educated decision on whether an in-service distribution fits into your personalized financial plan. 

Most 401(k) plans have limited investment options, and fees vary. By doing an in-service distribution to an IRA, you can have more flexibility with your investment options you pick yourself, or, if you want, you can invest that money with a financial planner you trust. Just understand that IRAs (and financial planners) also have fees, so you’ll want to compare what you were paying before to what you would be paying in the future. 

Another benefit to using an in-service distribution is that you can still continue to receive your company’s 401(k) match because you’re allowed to keep your 401(k) plan active. Most employers will match your contribution up to a certain percentage. 

The Simply Money Point is that an in-service distribution can offer a few benefits, such as greater control of your money. But before you proceed, make sure you fully understand your company’s provisions for taking these distributions.

 

Janet from Amelia: I’m 52 and make about $60,000 a year. Is there a certain amount I should have saved by now to retire comfortably? 

Answer: Simply Money Advisors believes there isn’t a “magic number” that everyone needs in order to retire. Everyone has a different financial situation and desired lifestyle – you probably have very different financial goals than all the other 52-year-olds living in the Tri-State making $60,000 a year, right? So why accept blanket advice that only looks at your age and income? Your retirement needs fluctuate depending on your financial objectives.  

Since your retirement is personalized to you, consider getting a personalized financial plan to help evaluate if you’re on track. This will take into consideration your cash flow, your current and future budget, your tax situation, your tolerance for investment risk, your future Social Security benefit, and more. A CERTIFIED FINANCIAL PLANNER™ can help you weigh out all of your options and determine the appropriate amount of money you will need to have saved in order to live comfortably in retirement. 

And there are plenty of other factors you need to consider as well when wondering if you can retire “comfortably,” not just the amount of money you have saved. One thing that many retirees forget to plan for is how they’ll spend their time in retirement and who they’ll spend it with. Envisioning your ideal lifestyle before you retire can help you set a plan in motion for what your days will look like when you quit your job. 

Sit down and determine what you would like to do in retirement. If you have a spouse, sit down together and create your vision for retirement. Would you like to spend your days on the golf course? Would you like to travel the world? No matter how you want to spend your days, have a plan.  

Many retirees feel they lack a sense of purpose when they retire. By deciding how you would like to spend retirement now, you can help eliminate these feelings. As you prepare for retirement, find hobbies you enjoy and people you enjoy spending time with. By creating a vision for your retirement, your financial planner can have a better idea of what your budget will be.  

The Simply Money Point is that everyone has different financial needs and goals in retirement. By determining what your vision for retirement looks like, you’ll be better able to put a personalized strategy in place to get you there.

 

Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney. Nathan Bachrach and Ed Finke and their team offer financial planning services through Simply Money Advisors, a SEC Registered Investment Advisor. Call (513) 469-7500 or email simplymoney@simplymoneyadvisors.com.

401(k) Financial Planning