Discussing the In-Service Rollover
A 401(k) plan is a great vehicle for employees to save for retirement. The money invested into this employer-sponsored qualified retirement plan is saved pre-tax and grows on a tax-deferred basis. Taxes on this deferred income are not paid until the money is withdrawn from the plan, usually in retirement.
 At that time, the withdrawn amount will be subject to income tax. It offers employees an effective way to build their retirement savings.ÂEmployers often match employee contributions up to a certain percentage.
If you’re age 50 or older, you’re eligible for an additional $7,500 in catch-up contributions, raising your employee contribution limit to $30,000. Depending on your plan, you may be able to make post-tax contributions beyond the pre-tax and Roth contribution limit but less than the combined employee and employer contribution limit to invest even more for your retirement. The total contributions cannot exceed your annual compensation at the company that holds your plan.
There are strict rules governing 401(k) plans. There are also annual limits on how much pre-tax income can be put into a 401(k) plan. The 401(k) contribution limit for 2025 is $23,500 for employee contributions and $70,000 for combined employee and employer contributions.
Many employees only think to rollover their 401(k) plans when they switch jobs, retire or consider various 401(k) strategies. These qualified assets are typically rolled over into another employee-sponsored 401(k) plan or into an Individual Retirement Account (IRA). If the individual has recently retired, an IRA is a good option if they want more control over the funds, more investment options or if they want to consolidate the funds into a single account.
An in-service withdrawal from a 401(k) allows a current employee to move all or some of the assets in their employer-sponsored 401(k) plan into an IRA without taking the money as a distribution. This in-service rollover contribution can provide more flexibility in managing retirement funds.Â
Who Is Eligible for an In-Service 401(k) Rollover?
Eligibility for an in-service rollover depends on your employer’s plan rules, your age, and your length of service. Most plans allow participants who are age 59½ or older to complete an in-service rollover without penalty, but some plans may permit limited rollovers at younger ages under specific circumstances (such as hardship withdrawals or vested balances).
Eligibility can also depend on:
- Plan-provider rules: Some employers restrict in-service rollovers to specific types of contributions (e.g., employer match, after-tax contributions).
- Vesting schedules: Funds must often be fully vested before they can be rolled over.
- Employment status: You must still be employed with the sponsoring company to qualify for an in-service rollover.
Eligibility Requirements: What Your Plan May Require
Before initiating a rollover, it’s important to confirm:
- Your age and service requirements (typically 59½ or older).
- Whether your plan explicitly allows in-service rollovers.
- Which funds are eligible (pre-tax, Roth, or after-tax contributions)?
- Any restrictions on how often rollovers can be done within a year?
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Contact your plan administrator or HR department for specific details on your employer-sponsored plan’s eligibility thresholds.
Plan for Your Future Today
​​How To Do an In-Service Rollover (Step-by-Step)
Here’s how to complete an in-service rollover:
- Verify eligibility. Confirm your age, vesting status, and whether your plan allows in-service rollovers.
- Review your plan documents. Check for limits on amounts, frequency, or contribution types eligible for rollover.
- Contact your plan administrator. Request information about the rollover process, available forms, and deadlines.
- Choose your rollover destination. Compare the differences between Roth IRA and traditional 401(k) accounts and make an informed decision based on your tax situation and investment goals.
- Select a direct rollover whenever possible. A direct rollover transfers funds from your 401(k) to your IRA without triggering taxes or penalties.
Confirm completion. Once transferred, review your new account to ensure all funds arrived correctly and keep documentation for tax purposes.
Benefits of an In-Service Rollover
Most 401(k) plans offer limited investment options compared to the broader choices available in an IRA. An IRA typically offers greater control and flexibility in investment selection.
Individuals who decide on an in-service rollover can generally still contribute to their company’s 401(k) plan, though it is important to note the rules are different for each plan, and the employee may be temporarily barred from contributing to their 401(k) after the rollover.
Investment Options & Fees: What to Compare
When evaluating a potential in-service rollover, consider:
- Plan limitations: Most 401(k)s offer limited investment menus (mutual funds, company stock, etc.).
- IRA flexibility: IRAs provide access to a wider range of investments—ETFs, bonds, real estate funds, and more.
- Fees and expenses: While IRAs can offer lower expense ratios, some custodians charge advisory, service, or trading fees.
- Administrative differences: IRAs require you to manage or delegate investment decisions, while 401(k)s are managed by the plan provider.
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Eligible plan participants should examine what fees they are currently being charged and whether rolling the funds into an IRA could reduce their total expenses.
Drawbacks to an In-Service Rollover
Check with your plan administrator to confirm eligibility before proceeding.
While employees are generally still able to contribute to their 401(k) plans after an in-service rollover to an IRA, some plan sponsors may impose a temporary ban on contributions if the employee pulls money from the plan. Individuals who still plan on contributing to their 401(k) plan after the rollover should find out if they will be temporarily penalized for withdrawing funds.
While individuals generally need to wait until age 59½ to take withdrawals from retirement accounts to avoid the 10% penalty, many 401(k) plans allow penalty-free withdrawals for early retirees at age 55. For an IRA, the individual generally must be 59½ to avoid the 10% penalty.
While normally not recommended, a 401(k) loan can provide needed funding for individuals who find themselves in a financial crunch. For individuals younger than age 59½, 401(k) loans can only be taken by active employees and must be paid back over a determined time frame to avoid being taken as a distribution subject to taxes and the 10% penalty. Individuals are not permitted to take out loans against their IRAs.
IRAs may involve new fees or require additional management. Additionally, it’s important to be aware of the rules regarding required minimum distributions (RMDs). When the account holder reaches a certain age, usually 72, the IRS mandates that a minimum amount must be withdrawn from the retirement account each year as a required minimum distribution.
It is also important to understand the impact an in-service rollover can have on Net Unrealized Appreciation (NUA). NUA is the increase in value of employer stock held in a tax-deferred retirement account, which may qualify for favorable long-term capital gains treatment when distributed. NUA allows the participant to apply long-term capital gains to the difference between the value in the average cost basis and the current market value of a security in a tax-deferred account. An in-service rollover could impact the participant’s ability to utilize NUA in the future to the extent of preventing use of the strategy. Everyone’s situation is unique, and investors should consult with their tax advisors when considering NUA.
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Legal & Creditor Considerations
While 401(k) plans generally offer strong federal creditor protection under ERISA, the same level of protection may not apply once funds are moved to an IRA. Legal safeguards for IRAs vary by state, so depending on where you live, IRA assets may be less shielded from creditors, lawsuits, or bankruptcy proceedings.
Before executing a rollover, confirm your state’s rules and discuss them with a financial advisor or attorney.
Is an In-Service Rollover Right for You?
An in-service rollover may be right for you if:
- You’re 59½ or older and want broader investment flexibility.
- You’re seeking professional management or a wider variety of investment vehicles.
- You want to consolidate retirement accounts and simplify your financial management.
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It may not be right for you if:
- Your 401(k) plan offers low fees and strong investment performance.
- You rely on 401(k) loan access or the plan’s unique benefits.
- You’re in a state with weaker IRA creditor protection, so it’s important to consider retirement considerations by state.
Reviewed by,
Chad Seegers, CRPC®
Chad began his career with Sagemark Consulting in 2005 and then became a Select member of Sagemark’s Private Wealth Services which operated as a national resource for financial planners focusing on Advanced Strategies in the High Net Worth marketplace. Chad then began his partnership with Insight Wealth Strategies in 2013 focused on retirement planning primarily with Oil and Gas employees and executives. His primary areas of expertise are retirement, estate, and investment strategies as he serves as Investment Strategist for the financial planning team.
Frequently Asked Questions
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For more information, please read the complete FAQ section or schedule a complimentary consultation today.
An in-service rollover allows a current employee to move all or some of their employee-sponsored 401(k) plan into an IRA without taking the money as a distribution.
Many 401(k) plans offer the option to do an in-service rollover, but some may not. Your plan administrator will let you know if an in-service rollover is allowed and what the plan’s specific requirements are.
You can speak with your 401(k) plan administrator to find out if in-service rollovers are allowed with your employer-sponsored plan.
Many plans will allow in-service rollovers at age 59½.
Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.
Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
