Is it a good idea to take an in-service
distribution from your 401k? Well let’s discuss it. Hey there and welcome back to
my channel! Maybe you’re thinking about taking an in-service distribution
because somebody in your office said that they did and it helped them
accomplish X Y or Z, or possibly your financial advisor has encouraged you to
look at an in-service distribution, or possibly you have this purchase in mind
and you see this beautiful 401k nest egg that you would like to tap into and
you’re wondering, “is it a good idea?” Well that’s what we’re gonna discuss in this
video today. But before we get into that I invite you to subscribe to this
channel. This the Happiness IRA and on this channel we talk about all things
money and retirement focused. The conversation that we have today is going
to be generalized in nature and that is because every single 401k is unique.
There are some general principles that are attached to 401ks but then each
individual plan sponsor decides on some of the specifics about plan
distributions. The first thing that you need to find is your summary plan
description. SPD for short. This should be found online. The SPD shows you exactly
the rules of your plan. Are you even allowed to take an in-service
distribution? Well that’s something you need to find out. Now that you’ve found
your SPD and you know if you are actually eligible to take an in-service
distribution there are a couple of things that you will want to weigh the
pros and cons of. The first is fees. In a 401k we are working with a bunch of
other people that are saving into that 401k therefore as a group you’re working
towards discounts. With your advisory fee it’s a lot easier to reach those
discounts in a group setting than it is to on your own. It might be that the fees
are a crucial piece of your decision, it might be that you decide in spite of the
fees, I’m going to take money out of the 401k and put it into this product. The
second consideration is advice at a 401k the advisor that comes to advise you is
only able to educate you on the plan specific information. They’re
not able to give you individualized advice because they’re always working in
the best interest of the company. That is who hired them. Now oftentimes when we
have that 401k you might have online access financial planning tools that you
can go in and fill out the information or even call a helpline to help walk you
through what your financial plan is. But it still can feel a little bit sterile
for some people. And so sometimes people don’t prefer that method. They want to go
and get their individual advice. You can always pay for that advice out of pocket
but sometimes people still want to take an in-service distribution from their
401k, transfer it to an advisor, in order to access that advisors advice letting
their investments pay the advisor rather than cutting the advisor a check.
A third consideration that you will want to look at is what product you are
jumping to. Your 401k has a set lineup of investment funds and typically those
investment funds will be well diversified that you can achieve your
standard goals, mostly accumulation goals. However
sometimes people want to take money out of a 401k in order to purchase a product
that helps them plan their retirement income. That can make sense so long as
there is not a product or a fund that meets that same goal on the 401k
platform (because as I mentioned before typically that 401k platform is going to
be less expensive than you using an IRA). The final thing I wanted to discuss is
when we take money from our 401k as an in-service distribution and use it for a
different reason… that 401k is the ultimate nest egg for most Americans
that helps create their retirement income after Social Security. So if we’re
robbing it you want to make sure you recognize what you are giving up. Is that
going to extend the number of years that you have to be working? Is that going to
extend the amount that you need to keep saving into your plan? Alright friends,
that’s all I have for today. Thank you so much for tuning in. I appreciate it as
always! So is taking money from your 401k as an in-service distribution a good
idea? I hope you recognize from this video that the big answer is it depends and take your time to do… to weigh both sides the pros and cons of doing it.
Whether that’s the fees, the advice, the products available, or how it could
possibly short-change your retirement. You need to go in with that to that decision
with eyes wide open and with a plan in mind of how you’re going to achieve what
you need to get done. So with all of that information I will leave you, and you
take care.