401(k) Secrets: What Most People Don’t Know About In-Service Withdrawals

Most people believe they're locked into their 401(k) until retirement or job change. But if you're 59½ or older, you might have a hidden option: in-service withdrawals.

This strategy lets you move part or all of your 401(k) balance into an IRA while still working. With 2026 401(k) contribution limits reaching $24,000 (plus $8,000 catch-up for those 50+), this becomes especially valuable for substantial account balances.

What Are In-Service Withdrawals?

An in-service withdrawal allows you to roll 401(k) money into an IRA through a direct rollover—avoiding taxes and penalties. While the 2026 IRA contribution limit is $7,500, there's no limit on rollover amounts from your 401(k).

Key benefits include:

• Thousands more investment choices beyond your 401(k) menu
• Potentially lower fees and expense ratios
• More flexible withdrawal options in retirement
• Better control over future tax planning

Most plans allow this at age 59½, though rules vary. Check your plan documents or ask HR about your specific eligibility requirements.

Why Consider This Strategy?

Investment Freedom: Most 401(k) plans offer just 10-25 investment options. An IRA opens access to individual stocks, ETFs, REITs, and international funds typically unavailable in employer plans.

Cost Control: Some 401(k)s charge annual fees of $50-$200 plus high expense ratios exceeding 1%. With an IRA, you can choose low-cost index funds with expense ratios under 0.1%.

Retirement Flexibility: IRAs offer more distribution options for retirement income planning. This becomes crucial when coordinating with Social Security benefits, which received a 2.5% cost-of-living adjustment in 2026.

Estate Planning: For Maryland retirees whose estates might approach the $13.99 million federal exemption threshold in 2026, IRAs typically provide better beneficiary options and stretch provisions than employer plans.

When to Stay Put

In-service withdrawals aren't always the right move. Consider keeping your 401(k) if:

• Your plan offers institutional investments with expense ratios under 0.25%
• You're retiring within two years and want to preserve options like Net Unrealized Appreciation for company stock
• Your employer provides unique benefits like guaranteed stable value funds
• You expect to be in a significantly lower tax bracket in retirement

Financial advisors in the Annapolis area often see clients who benefit from staying in excellent employer plans while others gain significantly from the IRA rollover flexibility.

Making the Right Choice

Before proceeding, check your 401(k) plan rules, compare fee structures, and consider how this fits your retirement timeline. Calculate the true cost differences and understand all tax implications.

Remember: Every situation is unique, and the best choice depends on your specific plan features, investment options, and retirement goals.

If you want personalized guidance on whether an in-service withdrawal makes sense for your situation, consider taking our Retire Ready Score for insights tailored to your circumstances.