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In-Service Withdrawals

Are you starting to seriously contemplate retirement? Would you be more comfortable beginning a relationship with a financial advisor who could help you prepare? If you are 55 or older, I would imagine that those thoughts have crossed your mind recently. Most people in this age group are giving thought on a consistent basis to what comes next. For many people, the biggest question is, “How?”

There are several aspects to retirement planning; emotional, social, geographic, family-related, and, importantly, financial. Many people can easily envision a happy life without a primary job. They are emotionally prepared. But not everyone, even the emotionally-prepared retiree, is prepared financially to take the leap.

Financial aspects of retirement are generally more difficult for most people. Unless you have earned a large, secure, lifetime pension, or can live so modestly that Social Security will suffice, you bear responsibility for funding your own lifestyle in retirement. That is a daunting responsibility. There are no “do-overs” once you punch out for the last time. Planning first is critical.

So, when should you start retirement planning? How should you start planning? Should you go it alone, or should you seek advice and assistance? Where, when and how? Answer those, and you are on your way. Failure to answer one or more of those, and you have a prescription for disaster.

If you are interested in becoming more knowledgeable, having more investment options, and possibly working with an investment advisor, help is (very often) on the way. Most fee-only Certified Financial Planners are compensated based on a small annual percentage of assets under management. Many 401(k) participants, TSP (government workers), 403(b), and 457 account owners, have most of their investable assets tied up in their Plans. This makes those assets inaccessible to a fee-only planner relationship.

Most Plans today offer an “In-Service Withdrawal” option for participants who reach a certain age. In-Service Withdrawals allow Plan participants who are still working to remove a substantial portion of their vested retirement account balances, using a tax-free rollover to an IRA. TSP features an age 55 In-Services Withdrawal feature. Other Plans have differing age requirements, and participants can search their Plan documentation to see if this option is available to them, and at what age.

The benefits of tax-free IRA rollovers solve the shortcomings of most Qualified Plans. Costs are generally less in an IRA, and the world of investment options is open to the IRA owner. Also, most fee-only advisors will be able to advise on the account as part of your overall personal financial planning process.

Employees who continue to work for a few years following the initial In-Service can most often transfer additional funds to the IRA on an annual basis. Over time, the Plan Participant takes control of his or her future investment, making the actual retirement smooth and well-planned.

If you are seriously contemplating a future retirement, give us a call.

Van Wie Financial is fee-only. For a reason.