How To Protect Your 401k With In-service Distributions

How To Protect Your 401k With In-service Distributions


401(k) plans are the most popular ways to save for retirement. They allow you to contribute pre-tax income, which means that your money grows faster because it isn’t subject to taxes as long as it stays in your plan. However, if something happens and you need access to the funds in your 401(k), there are some wrinkles that you need to be aware of before taking an early distribution. If you’re age 59 ½ or over with no separation from service, then you can take what is called an in-service distribution from your account. If this sounds like a good idea but not sure how it works or what other options might exist for accessing those funds before they would otherwise be available based on age restrictions… read on!

A 401k plan is the most common way to save for retirement, but sometimes life happens, and you need the funds you’ve saved.

In-service distributions are a lesser-known option that can help with this situation. An in-service distribution allows employees who are 59 ½ years old to take distributions from their current employer 401k plans. This can be an important tool if you want to protect your money from market volatility, or would like to access it later at a lower tax rate than the current one.

If you are still working for your employer, you may be able to take in-service distributions from your account.

If you are still working for your employer, you may be able to take in-service distributions from your account if:

  • You are 59 ½ years of age.
  • Your employer allows In-service distributions.

You can roll over in-service distributions into an IRA account or an Annuity.

You can roll over any in-service distribution into an IRA account or an Annuity. Here’s how:

  • Rollover to a Roth IRA. If you have earned income above the threshold, you may be able to contribute up to $5,500 per year (or $6,500 if age 50 or older) directly from your paycheck into a Roth IRA. This is called a “direct rollover” and you will have 60 days after receiving the distribution within which to complete it. Your plan administrator must be notified that this option was selected and provide instructions on how to complete it.
  • Rollover to Traditional IRA or other eligible retirement vehicle (e.g., Annuity, SEP, SIMPLE). You may also make non-elective contributions into either type of traditional IRA for yourself—these are deposits made out of your own funds outside of your annual contribution limit—so long as there are no other restrictions preventing them from being made under IRS regulations due to having reached certain ages.

Your employer may not provide the ability to make any in-service distributions.

While many 401k plans allow in-service distributions, it’s important to note that your employer may not provide the ability to make any in-service distributions. While federal law permits employers to set their own rules, some employers choose not to allow in-service distributions.

It is important to contact your employer plan administrator or review your summary plan description to find out if an in-service distribution is an available option. 


Everyone has a different vision of retirement but it’s important to understand that as you get closer to retirement age, the less market risk should be taken. Though your employer-sponsored 401K plan is subject to market risk, you may have the option to take advantage of an in-service distribution that will allow you to become more active in protecting a portion of your retirement savings from stock market downturns.

If you are worried about market volatility and are looking for ways to protect your hard-earned savings beyond your employer-sponsored plan, get in touch with one of our retirement income experts today to see if an in-service distribution is an option for you. We will provide you with the guidance needed to make smarter financial decisions so you can live a better life.

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