Thursday, October 22, 2009

3 Reasons Everyone Should Demand an “In-Service Withdrawal” Provision in Their 401k Plan?

Almost all 401k participants are unaware that they can legally remove a portion of their 401k into their own self-directed IRA, without penalty or taxes, and without quitting their job. This is provision is most commonly known as an “In-Service Non-Hardship Withdrawal”. However, most 401k plan administrators do not put this provision in many company’s 401k plan documents. It’s my belief they do not have this provision for fear of losing assets by which they can continually collect fees from plan participants (employees). Below are 3 reasons why all employees should demand an “In-Service Withdrawal” provision in their company sponsored 401k plan:

#1) More Options:

Money removed can be put in any savings vehicle that allows for IRA (Individual Retirement Account) contributions. This means that participants are not limited only by the choices in their current 401k plan. With your own IRA you are in control of your money!

#2) Reduce Fees:

According to the Department of Labor there are up to 17 fees a 401k plan administrator can charge. Even worse they found that 78% of workers did not know what fees they were being charged in their 401k.

#3) Safer Options:

Many articles are coming out stating that the 401k system is simply broken (see links below). A common complaint is there are no safe options available. There are many safe places you can put an IRA today, including some that will guarantee you an income for life in retirement (just like granddad’s pension).

In conclusion, like most people I prefer options as opposed to a one size fits all approach. An “In-Service Withdrawal” provision gives these options. Without this provision you are stuck with whatever choices your employer provides.

Links to article regarding our broken 401k system:

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