Do you know that you can pull funds from your 401k before you retire? The in-service withdrawal could be a great option for Lockheed 401k participants looking to access funds in their 401k while they are still working.
What is an in-service withdrawal?
An in-service withdrawal is a feature of some 401k plans that allows you to roll money out of the plan while you are still working for the company.
If you pull funds out of the plan, they may be taxable at your ordinary income tax rate. You also have the option of rolling those funds into a traditional IRA and avoid the tax hit.
Lockheed employees can do an in-service withdrawal once every six months. The funds can be taken from a number of different buckets depending on how long you’ve been at Lockheed and how the funds are invested (pre-tax or after-tax). You can find out more by contacting the Savings Plan Information Line (1-800-444-4015) or online https://www.lmpeople.com
Who can take an in-service withdrawal?
Anyone that is still working and is 59.5 years of age or older can take a withdrawal from the plan.
What are the benefits of taking an in-service withdrawal?
- More investment flexibility. There are limited options available to you to invest inside your 401k plan. If you rolled out a portion of your 401k into a traditional IRA, you could possibly have more investment options, including cash, CDs, individual stocks, bonds etc. to invest in.
- More control over your assets. If you roll assets over to a traditional IRA, you don’t have to worry about the plan at work changing investment options or providers (Voya) and requiring you to make changes to your 401k. You can direct the IRA yourself or hire a financial advisor to help.
- More options for your beneficiaries. The “Stretch IRA” is a useful tool for your beneficiaries and is not available in the Lockheed 401k. For more info on the stretch IRA…you can click HERE.
What are the drawbacks of taking an in-service withdrawal?
- Fees. The fee you pay inside a traditional IRA could be more expensive than the costs of your 401k. Make sure you know exactly what fees you’ll pay in the IRA before you decide to roll assets out of your 401k.
- More investment flexibility (and decisions). I know that was a benefit above, but if you don’t like a lot of options, rolling funds into a traditional IRA could create issues. A financial advisor could help with those choices, but will most likely come with an additional fee (see above).
- Retiring Early? If you are planning on retiring before age 59.5, leaving the funds inside the 401k might be better for you. The 401k allows you to take funds out after you hit 55 if you no longer work at the company. If you roll funds out of the plan to a traditional IRA, you could be taxed and penalized for removing funds from that IRA before age 59.5.
An in-service withdrawal may or may not be a good option for you, but it’s important to look at the positives and negatives when you turn 59.5.
If you’d like a 100% free, no-obligation analysis to see if it’s the right option for you, shoot me an email at Brian@TheAeroAdvisor.com and I would be glad to help.
