Can You Roll Over Your 401(k) to an IRA While Still Working?

• Some employer-sponsored retirement plans may let eligible participants age 59½ or older make partial withdrawals and take in-service 401(k) distributions while still employed
• An in-service distribution may allow eligible assets to be partially rolled over to an Individual Retirement Account (IRA) while maintaining participation in the employer retirement plan
• For investors with significant retirement assets, the decision may affect investment flexibility, retirement income planning, tax considerations, and legacy objectives
• Evaluating an in-service distribution as part of a broader wealth plan may help align retirement assets with long-term financial goals

Investors who are age 59½ or older and still employed may have access to a portion of their 401(k) assets through an in-service 401(k) distribution, depending on the provisions of their employer-sponsored retirement plan. Although this option is often discussed in the context of rolling assets to an IRA, it does not have to be an all-or-nothing decision. In some cases, an eligible participant may be able to take a partial distribution, request a withdrawal, or move some—or all—of eligible 401(k) assets to an IRA while continuing to participate in the workplace retirement plan.

While an in-service distribution may not be appropriate for every investor, it can provide added flexibility and create an opportunity to align retirement assets with a broader financial plan.

For many executives, business owners, and long-tenured professionals, a 401(k) can become a significant component of personal wealth. Decades of disciplined saving, employer contributions, and market participation may create a retirement account that warrants the same thoughtful oversight as a taxable investment portfolio, concentrated equity position, or estate plan.

That level of growth is often the result of several factors working together over time:

• Consistent maximum or near-maximum contributions over an extended career
• Employer matching, profit-sharing, or other employer-funded contributions
• Long-term exposure to equity markets and other growth-oriented investments
• The discipline to remain invested through changing markets and economic cycles

As retirement assets grow, the planning considerations often become more nuanced. Investors may need to assess how the account should be invested relative to the rest of the portfolio, when withdrawals should begin, and how future distributions may intersect with taxes, charitable giving, beneficiary planning, and legacy goals.

Viewed through that lens, an in-service distribution may be less about accessing retirement assets today and more about creating flexibility to manage a meaningful source of wealth within an integrated, long-term plan.

For some investors, the value of an in-service distribution lies in its flexibility. Rather than moving an entire 401(k) balance, an eligible participant may be able to roll over a portion of eligible assets to an IRA while keeping the remaining balance in the employer plan. This approach may preserve access to certain plan features while providing additional flexibility around investment choice, portfolio customization, retirement income planning, and beneficiary or legacy objectives.

An investor with a sizable 401(k) balance may choose to roll over a portion of eligible assets to an IRA to access investment options that may not be available within the employer plan, while retaining the remainder in the plan.

As retirement approaches, moving a portion of eligible assets to an IRA may help support a more coordinated withdrawal strategy across retirement accounts, taxable assets, and other resources.

A partial rollover may allow an investor to segment retirement assets by purpose—for example, keeping some assets invested within the plan while positioning other assets in an IRA for tax-aware planning, beneficiary designations, or legacy considerations.

These potential advantages should be weighed against the features of the employer plan, including investment options, expenses, available services, creditor protections, distribution rules, and any other plan-specific benefits. The decision should also account for the investor’s tax profile, income needs, and long-term planning goals.

Because each option involves different trade-offs, professional guidance can help investors evaluate whether assets should remain in the employer plan, be partially distributed or rolled over, or be moved more fully to an IRA. Areas where professional guidance may be valuable include:

• Aligning asset allocation with the investor’s full balance sheet and risk profile
• Diversifying retirement assets across appropriate asset classes, sectors, and strategies
• Maintaining rebalancing discipline as markets, goals, and income needs evolve
• Providing perspective during periods of market volatility and helping avoid reactive decisions
• Coordinating retirement income planning across retirement accounts, taxable assets, and other resources
• Evaluating tax-aware withdrawal strategies and the timing of future distributions
• Integrating beneficiary designations, estate planning, and legacy objectives

The appropriate approach will depend on the plan’s provisions, investment menu, costs, tax implications, income needs, and how the decision fits within the investor’s broader financial objectives.

Before taking an in-service distribution, investors should confirm that the employer plan allows one and understand the terms that apply. For investors with meaningful 401(k) balances, an in-service distribution can be an important planning decision—not simply an administrative transaction. Consider evaluating the choice in the context of your full balance sheet, retirement income needs, tax profile, and legacy goals before taking action.

Visit our Wealth Planning page to explore strategies that may help you align your wealth with your long-term goals, priorities, and legacy objectives.

Sources: www.irs.gov; www.dol.gov

This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.

There is no assurance the any investment, financial or estate planning strategy will be successful.

Investing involves risks, and you may incur a profit or a loss. Asset allocation/diversification cannot guarantee a profit or protect against a loss.

Wilmington Trust is not authorized to and does not provide legal, accounting, or tax advice. Our advice and recommendations provided to you are illustrative only and subject to the opinions and advice of your own attorney, tax advisor, or other professional advisor.

This information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Opinions, estimates, and projections constitute the judgment of Wilmington Trust and are subject to change without notice. There is no assurance that any trend will continue.

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