Can we roll over our 401(k) to an IRA and still take advantage of employer matching funds?
My wife and I are currently contributing to a 401(k) plan and receiving an employer matching contribution. However, we would like to invest our retirement funds without being limited to the mutual fund and fee structure options chosen by our employers. Can we claim the employer match on our 401(k) contributions while rolling over the balances regularly to an IRA?
As a general rule, you can not roll over assets from your 401(k) to your IRA until you have separated service with your employer. The exception to this is if your plan has an in-service nonhardship withdraw privilege. These have very strict rules as to when and how much you can roll over while still employed. If under these rules you can move those assets over then yes you can contribute to your plan and claim match. However, understand these options are not the norm.
If you are not satisfied with the investment options available in your 401(k) Plan, you should ask your Plan Administrator, whehter the Plan allows for a Self-Directed Brokerage Account (SDBA) window. With an SDBA, you can generally invest most ETFs and mutual funds availble through the brokerage account provider. For example, for most Vanguard workplace retirement plans, their SDBA window is availble through TD Ameritrade. Other plans have it available through Schwab/Fidelity. These weren't common 10 years ago, but more and more plans are offering SDBAs.
You're gonna hate this answer. But it's the one that applies to most questions posted on this (and any site). Are you ready? The answer is, "It depends."
Some (though only a small percentage of) employers allow employees to manage their 401k plans independently, most 401k plans require employEES to participating in employER matching programs to maintain their 401k within the scope of the approved offerings.
There is an instance called an in-service withdrawal which allows active employees in a plan to pull some of the money in your 401k and roll it over to an IRA. Eligible investors often make this choice to that they have greater control over their investment options. Thus, as long as you maintain a part of your 401k in your company's plan the employer matches will continue to be added to your ER offered 401k.
If you elect to not particiapte in the 401k and instead simply fund your own IRA, you would not be eligible for a company "match" because you wouldn't be a participant in the plan. If however, your company offers a "safe harbor" 401k, you may receiving an ER match (based on your compensation), and those funds would be held in the company's 401k and not eligible as a regular addition to your IRA.
Not an easy question to answer. Much more to it than a simple, yes or no response. And I've just scratched the surface.
As a smart investor, you have recognized the pros and cons of investing a retirement plan. Thus, investing outside the 401k can get you more choices for sure. However, unlimited choices may not translate to a higher return as you have more research to do (compare and contrast the funds you intend to invest). Furthermore, the rules on your 401k plan summary may prevent you from doing so unless it sanctions that or allows a self-directed account.
A self-directed 401k account allows you to invest beyond what’s currently offered on the 401k investment menu. Once it offers to one person (employer, boss, officer, etc.), it will be available to all employees. Through a self-directed 401k, you can get both of your wishes—more choices and obtaining the employer’s matching in the same account. Moreover, a 401k plan offers a stronger asset-protection than an IRA.
If the self-directed 401k is not available and you’re under 59 1/2, then you may not have the choice but to stay at your current 401k platform unless you change job. When that happens, you can roll the 401k to an IRA.
A lot to consider, and familiar yourself with the current 401k plan summary would help you decide how to better manage your money. Best!
We would love to be able to help you! However, to get started on the right foot, we have many ?’s to ask you first. We work very much like a doctor would. Keep in mind you just don’t walk into the Doc’s office and immediately get a prescription.
In fact we always say that prescription without diagnosis is malpractice.
So let’s get started…..
Something to look into is to see if your plan offers an "In service non-hardship withdraw option" Usually only avial to folks over age 55. If you have it and you qualify, then you may be able to take advantge of this provision. I have seen plans in the past allow up to 50k and much as the enture balance. All up to the employer.
However, there are many other items to talk about there. Is there a ROTH option within the plan?
Do you have kids?, What kind of legacy planning have you done? Much bigger conversation needs to be had here. Happy to help.
Brett M. Sause, LUTCF®, LTCP®, CLTC®, RFC®, LACP®, FSCP®
Principal & CEO