401k In-Service Distributions allow eligible participants to distribute or rollover funds from their existing 401k plan into another plan or an IRA while still working for the employer who sponsors the 401k plan. Under most situations, the early distributions would be subject to income taxes and penalties, if even allowed by the terms of the plan. However, some plans may allow participants aged 59 ½ and older to have access to their funds even while they are still employed, participating in the plan, and/or making ongoing contributions.
In-Service Distributions, once eligible, are different from other common provisions such as hardship distributions in that in-service distributions can be for any reason.
The benefits of In-Service 401k Distributions are that rollovers from a 401k plan to an IRA may allow for greater planning flexibility and investment options compared to the options provided by the Plan. However, it is important to review and compare other benefits the plan may provide including ERISA protection, loan provisions, and potential liability protections. In addition, the administrative costs charged by the 401k plan should be weighed against the cost that would be incurred in the receiving plan or account.