Many don't know this, but if you are currently participating in an employer-sponsored retirement plan such as your 401(k) plan, you may not have to keep all your retirement savings locked in the employer plan and wait until you change jobs or retire to rollover your funds into an IRA. On the contrary, you may be allowed to take an in-service distribution and roll over your retirement funds from your current employer-sponsored plan to an IRA.

There are many benefits to an in-service distribution. You will have more control over your retirement assets and you'll be able to manage them before you choose to retire or switch jobs. Unlike in a 401(k), where your retirement savings aren't being actively managed and you are limited to choose from only few investment choices, with an in-service distribution you will gain access to the universe of investments. As long as you roll your assets directly into an IRA, you can avoid any tax penalties and the mandatory 20% IRS withholding tax on your in-service distributions.

Determine if you're eligible You will need to first find out whether your employer-sponsored plan allows you to take in-service distributions. The terms of your retirement plan should tell you specific eligibility requirements, which can vary widely across different plans, so review your plan documents to find out if you can opt for in-service distributions. If it's too overwhelming to go through your plan documents, just contact your 401(k) plan administrator for a quick answer.

Rollover while you're still employed There are many advantages to moving portions of your retirement assets into an IRA while you're still working.

Benefits:

Unlimited control. If you roll over your retirement savings into an IRA, you become the account owner and have full control over your assets without any employer-sponsored plan restrictions and more importantly investment restrictions.

Investment diversification. Most employer-sponsored plans have limited investment options to choose from which can inhibit your portfolio's performance. IRAs, on the other hand, provide the universe of investments at your fingertips so that you can essentially diversify your holding and positions across any asset class. This can help diversify your portfolio and reduce and manage your portfolio's risk level.

Beneficiary designation options. IRAs may allow you to name single or multiple beneficiaries, as well as name a trust as beneficiary. They also can allow you to set beneficiary payouts and the like. Since not all IRA custodians offer the exact services, it's important to understand what choices are available to you when you rollover your assets.

Income tax withholding. Qualified plans require 20% IRS income tax withholding on distributions. However, you have the choice to opt-out from the withholding tax on IRA distributions.

Weigh out some drawbacks before rolling over your retirement funds An in-service distribution may have potentially some drawbacks, so you should consider them before you roll over your savings.

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