In-Service 401(k) Rollover

An in-service 401(k) rollover is the direct or indirect rollover of an employee’s assets from a 401(k) into an IRA while the employee is still employed. Unlike a traditional 401(k) rollover, an in-service rollover allows your assets to transfer into an IRA without changing jobs.

Marguerita M. Cheng, Certified Financial Planner
  • Written By
    Marguerita M. Cheng, CFP®, CRPC®, RICP®

    Marguerita M. Cheng, CFP®, CRPC®, RICP®

    Expert Contributor

    Marguerita M. Cheng, CFP®, CRPC®, RICP®, is the chief executive officer at Blue Ocean Global Wealth. As a Certified Financial Planner Board of Standards Ambassador, Marguerita educates the public, policymakers and media about the benefits of competent and ethical financial planning. She is a past spokesperson for the AARP Financial Freedom campaign.

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  • Edited By
    Lamia Chowdhury
    Lamia Chowdhury

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial editor at Annuity.org. Lamia carries an extensive skillset in the content marketing field, and her work as a copywriter spans industries as diverse as finance, health care, travel and restaurants.

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  • Updated: December 5, 2022
  • 7 min read time
  • This page features 2 Cited Research Articles
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APA Cheng, M. M. (2022, December 5). In-Service 401(k) Rollover. Annuity.org. Retrieved December 5, 2022, from https://www.annuity.org/retirement/401k/rollover/in-service/

MLA Cheng, Marguerita M. "In-Service 401(k) Rollover." Annuity.org, 5 Dec 2022, https://www.annuity.org/retirement/401k/rollover/in-service/.

Chicago Cheng, Marguerita M. "In-Service 401(k) Rollover." Annuity.org. Last modified December 5, 2022. https://www.annuity.org/retirement/401k/rollover/in-service/.

What Is an In-Service 401(k) Rollover?

An in-service rollover is the transfer of the assets in an existing 401(k) plan to an IRA while an employee is still employed by the employer sponsoring the 401(k) plan.

An in-service rollover to an IRA is a retirement planning strategy that has been used by employees who value the flexibility of IRAs. There are three main reasons why many people prefer rollovers — IRAs can be cheaper than 401(k) plans, IRAs provide more investment options and IRAs give the account holder more control.

Because the IRS does not treat an in-service rollover as a distribution, the plan participant does not have to pay taxes when making a rollover into a traditional IRA. Taxes will only be payable when the account holder withdraws money from the traditional IRA later.

However, taxes will apply if the rollover is into a Roth IRA, since Roth IRAs only accept post-tax funds. Once the funds have been taxed, the account holder can make tax-free qualified withdrawals from the Roth IRA. (perhaps link to an article on qualified Roth withdrawals)

How Does an In-Service 401(k) Rollover Work?

An in-service rollover 401(k) works like a typical rollover. It can be a direct rollover where the custodian of the 401(k) transfers the funds into an IRA without liquidating the underlying assets or where the custodian liquidates the assets but writes a check in the name of the IRA rather than the account holder.

It can also be an indirect rollover where the custodian of the 401(k) liquidates the assets and writes a check in the name of the account holder.

In both cases, the account holder should seek to complete the rollover within 60 days, according to an article from the IRS. However, in the case of an indirect rollover, the 60-day window is a requirement. So, for an indirect rollover to not be treated as a distribution (and thus, taxable), it must be completed within 60 days, in accordance with the IRS’s 60-day rollover rule.

Who Is Eligible for an In-Service 401(k) Rollover?

One of the complications with in-service rollovers is that not every 401(k) plan offers it. So, you will have to check with the custodian of your 401(k) to be sure that it’s an option.

Moreover, those who allow it may have varying rules regarding eligibility.

Some common eligibility requirements include:
  • The account holder must be at least 591/2 years old.
  • The account must be at least two to five years old.
  • The account holder must have reached retirement age.
  • The account must have been terminated.
  • The account holder must have been disabled.

In addition to the criteria for eligibility, employer guidelines differ whether an employee can resume a 401(k) after a rollover. While most employers allow it, they also require that the employee waits for some period before resuming.

Pros & Cons of an In-Service Rollover

There are some pros and cons to consider before following through with an in-service rollover.

Pros of an in-service rollover
Wider investment options
401(k)s tend to have a lesser variety of investment options compared to IRAs. Investors who are looking to expand their portfolio can, therefore, benefit from IRAs. There are a special class of IRAs called self-directed IRAs (SDIRAs) that provide an even wider range of investment options.
Possibility of lower fees
Many 401(k) custodians charge excessive administration fees. Many people roll over into IRAs because of the possibility of paying lower administration fees.
More control
An IRA, as the name implies, gives more control to the account holder. For example, the account holder can choose their own administrator or custodian. With SDIRAs, this freedom is even more extensive.
Cons of an in-service rollover
Possibility of higher fees
Aside from lower administration fees, IRAs are not cheap. Some of the fees associated with IRAs include management fees, advisory fees, trading commissions, among others. Therefore, some IRAs — such as SDIRAs — can be as expensive as some 401(k)s.
No option to take a loan
401(k) holders who are experiencing financial distress have an option to take a loan out of their plan (up to the lesser of $50,000 or 50% of the total funds in the plan). This is not available with IRAs.
No option to start withdrawal at 55
While qualified distributions from a 401(k) also begin at 59 1/2 years, there is a provision for early qualified distributions at 55 provided the plan owner has separated from service. This provision is not available for IRAs.
Delay in resuming participation
While many employers will allow in-service 401(k) rollovers, they might require employees to wait some time before resuming contributions to the 401(k).
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Does an In-Service Rollover Work for Me?

As the pros and cons show, an in-service rollover can be both beneficial and detrimental.

The first step to deciding if it is best for you is to compare the fees of your current 401(k) with that of the IRA. If the IRA is not any less than the 401(k), then the rollover might not be that beneficial.

However, the extra investment options provided by IRAs might be so profitable that you are indifferent to fees. But you must be sure that you are not overestimating your expectations and that you have factored in the risk of those investment options into your evaluation.

If you don’t ever have to take a loan from your 401(k), the decision to roll over into an IRA might be more straightforward.

Weigh every pro and con and to determine which ones are more important to you. Once you have determined your priorities, it will be easier to decide if an in-service may work for you.

Other Options for Your 401(k)

In the place of in-service rollover 401(k), there are three other options for your 401(k).

Keep your 401(k)
You don’t need to rollover your 401(k) into an IRA. You can always decide to keep it until you change your job and transfer it into another 401(k). This is a good option if you believe the benefits of a 401(k) are superior to that of IRAs or if you have the financial capacity to keep both a 401(k) and an IRA.
Roll over when you change jobs
You can wait until you change your job before rolling over your 401(k) into an IRA. With this option, you don’t have to worry about the cons of in-service rollovers. Moreover, you can always start a new 401(k) with your new employer.
Roll over into an annuity
You can also do a 401(k) rollover into an annuity through a direct transfer or qualifying withdrawal. Annuities offer downside protection and can provide an additional source of income during retirement.

Speak to your financial advisor to weigh your options. They can help you decide whether to roll over your 401(k) into an IRA or if you should consider an alternative.

Frequently Asked Questions

What is a 401(k)?
A 401(k) is an employer-sponsored retirement account where employees can contribute pre-tax funds in preparation for retirement. Depending on the company, the employer can agree to match the contributions made by the employees up to a certain percentage (e.g, 50%). Funds contributed to a 401(k) and the interest earned grow tax free; tax is only paid when the account holder withdraws money from the account.
What is an IRA?
An IRA is a tax-advantaged retirement account provided by financial institutions that allow individuals with earned income to contribute funds for retirement. Unlike employer-sponsored plans, individuals can open and operate an IRA without the involvement of their employers. There are different types of IRAs with different features and benefits. Types include traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA.
Can you roll over your 401(k) while still employed?
Yes. With in-service rollovers, you can roll over your 401(k) into a traditional or Roth IRA while still employed.
Does fidelity allow in-service rollovers?
Yes, Fidelity allows in-service rollovers. However, they note that once you have rolled over into an IRA, you may not be able to roll over into any employer-sponsored plan subsequently.
Does Vanguard allow in-service rollovers?
Yes, Vanguard allows in-service rollovers from any type of employer-sponsored plan into an IRA.
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Last Modified: December 5, 2022
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2 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Internal Revenue Service. (2022, June 16). Rollovers of Retirement Plan and IRA Distributions. Retrieved from Rollovers of Retirement Plan and IRA Distributions | Internal Revenue Service (irs.gov)
  2. Internal Revenue Service. (2022, July 28). Topic No. 413 Rollovers From Retirement Plans. Retrieved from Topic No. 413 Rollovers From Retirement Plans | Internal Revenue Service (irs.gov)