what to ask your plan administrator about in service withdrawals
if you don t like your current investment options and want to move some or all of your 401 k money to an ira that has better choices you ll need to search for the faq pages or call and ask direct questions of the company which manages your retirement plan look for the answer to these four questions since only about 30 of employer sponsored plans in america don t offer this option it is worth looking into if you want more investment options 5 once you ve determined that your plan does allow non hardship in service withdrawals you ll want to pay attention to the tax consequences of such a decision typically the distribution must be made to a traditional ira to avoid generating new taxes but oftentimes a distribution to a roth ira is allowed if you are willing to pay the taxes that will come from such an action some people might consider paying taxes or penalties worthwhile if their investment options were good enough but most investors and financial advisers would agree it is generally not considered a sound choice to do so still individual circumstances vary and no one can say that one single choice is best for all investors that being said you should be very careful about your choices in this area investors have lost significant money chasing after investments that suggest higher than normal rates of return and in hindsight paying taxes for the privilege of losing money can feel like adding salt to an open wound tax implications of in service withdrawalsmost withdrawals made from a qualified employer sponsored retirement plan before reaching age 59 will come with a 10 early withdrawal penalty tax on the amount being distributed this is in addition to applicable federal income and state taxes some exemptions are defined by the internal revenue service irs 6the 10 premature penalty tax can be waved if the in service withdrawal or hardship distribution is used to cover medical expenses that exceed 7 5 of adjusted gross income agi or if it is used to make a court ordered payment to a divorced spouse or child ren but since non safe harbor employer matching contributions and profit sharing contributions can be distributed at any age and voluntary contributions can be withdrawn at any time in service withdrawals can be used if you have alternative investment vehicles you clearly understand and are willing to manage 7