Life is full of surprises, and if you ask your clients to inquire with their employers about in-service withdrawal provisions within their qualified retirement plans, you might be surprised with the responses you get.
Speaking of surprises, my wife and I just had a HUGE surprise on December 3 when our baby boy was born seven weeks early. I guess he just wanted to meet us sooner than his January 19 due date (and give mommy and daddy a tax credit for 2013).
Unlike our little surprise, your clients can actually seek predictability by reaching out to their employers or plan administrators to inquire about the qualified retirement plan's (that is, 401(k) or defined benefit plan) in-service withdrawal provisions. Not all plans have these provisions, since they are not required to, but you might be surprised by the number of plans that offer this feature (which could include a client's plan).
One main reason a person would want to consider an in-service withdrawal is DIVERSIFICATION. Since the plan may have limited investment options, withdrawing and rolling over a portion of the plan assets into an IRA will give your client a much greater number of options in which to invest. Whether it is mutual funds, annuities, or a number of any other investment options out there, an in-service withdrawal can put the client in the driver's seat to determine the way to invest for retirement rather than remaining at the mercy of the options an employer has selected. Also, this strategy provides you more insight about how the withdrawn/rolled assets are invested going forward.
In-service withdrawals may be allowed on both defined contribution and defined benefit plans. The details are also discussed in our client-approved in-service withdrawals brochure, but here's a quick look at how the in-service withdrawal provisions generally apply for each type of plan.
|Eligible Funds for In-Service Withdrawals
|Defined Contribution Plans||
Employee Salary Deferrals:
Note: Only vested amounts are available for in-service withdrawals.
|Defined Benefit Plans
||An employer can choose to offer in-service withdrawals to employees starting at age 62.|
Unfortunately, this is something that the client needs to discuss with the employer or plan administrator, but as you'll see in our client-approved in-service withdrawals brochure, there are some ideas that can help drive the conversation by providing a few questions that should be answered:
As you consider in-service withdrawals for clients, follow your broker/dealer's written procedures for suitability when recommending rollovers. Consider reviewing your book of business for clients that have qualified retirement plans through their employers. After you've narrowed the list down to these individuals, make sure to include this diversification discussion in your next meeting or conversation with the client. Hopefully, you’ll be pleasantly surprised with the response.
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