Surprises Might Be Just Around the Corner...Ask about In-Service Withdrawals

January 15, 2014

You might be surprised if you ask your clients to inquire with their employers about in-service withdrawal provisions within their qualified retirement plans.

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).

Why In-Service Withdrawals?

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 Also, this strategy provides you more insight about how the withdrawn/rolled assets are invested going forward.

What Can Be Withdrawn and When?

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:

  • Upon attainment of age 59½
  • Due to disability
  • After-tax contributions
  • Rollovers from other retirement plans

Employer Contributions:

  • After a fixed number of years
  • Attainment of stated age
  • Occurrence of certain events (e.g., illness or disability)

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.


How to Request an In-Service Withdrawal

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:

  • Are in-service withdrawals/rollovers allowed?
  • Is the client eligible to take an in-service withdrawal/rollover?
  • If so, how much is currently available to withdraw or roll over?
  • What requirements or restrictions are there on the frequency and amounts of withdrawals/rollovers?
  • What employer forms are necessary to process an in-service withdrawal/rollover, and are any signature guarantees required?

So Now What?

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.

Picture of Chad Goforth

Chad is currently an Attorney Consultant for the Corporate Law Department at Pacific Life. Previously, he was a Senior Retirement Strategies Consultant, bringing more than 13 years of industry experience to his role and providing technical insights to our sales team and registered representatives on a variety of issues including IRAs, qualified plans, annuities, and estate planning issues.

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