Should You Move Your 401(k) to an IRA Once You Hit 59½?

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Age 59½: That’s the magic age when you can typically take penalty-free distributions from your retirement accounts. If you’re still working and have a 401(k), it’s also the age when you can possibly utilize an in-service withdrawal to increase your investment options and take advantage of additional planning opportunities.

Sure, 401(k)s are a great investment during your working years. You might get a company match, which is free money for you if you contribute a certain amount of your own funds. You’re also able to benefit from the power of compound interest through the massive market returns we’ve seen in the past. Plus, many 401(k)s are low-cost — making them an attractive way for individuals to save for retirement.

One drawback of 401(k)s is that most plans don’t allow for in-service withdrawals until you turn age 59½. When you do, you have two options: leaving your money in the 401(k) or moving it into an IRA. But which options should you take?

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There are three reasons why moving a 401(k) to an IRA could make sense for you:

Reason #1: More investment options

Most 401(k)s have limited investment options, while IRAs typically offer thousands of options to choose from. This allows you to find investments that may be better suited for your goals and risk tolerance.

An IRA might also offer opportunities to return a potentially higher amount than the stable value option in your 401(k). Let’s say your 401(k)’s stable value option is guaranteed to increase at a fixed rate of 3% per year. An IRA offers other investment options that may be able to produce a much higher return of 5% to 6%.

This 2% difference may seem small — but it could lead to you having a lot more money for retirement over time. For example, if you have $1 million saved, a 2% increase on your return can result in $20,000 more in annual growth, which compounds over time.

Reason #2: Opportunity for Roth conversion

Moving your money from a 401(k) to an IRA also opens up the opportunity to do a Roth conversion, which most 401(k) plans don’t allow you to do. This is a two-step process: You’ll first need to roll your money from the 401(k) into an IRA, and then convert some or all of the funds in the IRA to a Roth IRA.

Many people (including me) think a Roth conversion can make sense right now because tax rates are likely lower now than they will be in the future. Converting funds to a Roth allows you to lock in lower tax rates today vs potentially paying higher tax rates in the future. For example, say you wanted to convert $100,000 from an IRA to a Roth IRA this year. If you’re in the 25% tax bracket today, you’ll pay less than if you wait and your tax bracket changes to 30%.

Reason #3: Professional investment management

The third reason why it may make sense to move your 401(k) to an IRA is to take advantage of independent investment management and financial planning. While some employer-sponsored plans may offer limited access to a financial professional, an independent financial firm may be able to give you personalized advice that’s tailored to your specific goals.

Some firms will charge a fee to assist only with the investment management portion. I recommend looking for a firm that charges 1% or less and provides comprehensive retirement planning plus investment management for their fee.

A financial professional can provide much more value by providing services like proactive tax planning and retirement income planning. They may also offer health care planning, exploring ways to cover potential long-term care needs or finding your best Medicare options. They might also work with a qualified estate planning attorney and tax professionals to make sure your loved ones are protected and that your money is distributed to your heirs in a tax-efficient manner.

One additional benefit to completing an in-service withdrawal now is that you can still contribute to your 401(k) going forward and get the company match. However, not all employer-sponsored plans allow you to move money from a 401(k) to an IRA while you’re still employed at the company, even after the age of 59½. Your plan documents or administrator can tell you whether your 401(k) plan allows for an in-service withdrawal.

As always, I recommend working with an independent financial professional who will truly act in your best interests. Look for someone who offers comprehensive planning to make sure you get what you pay for and help you avoid making costly mistakes. It’s your retirement — and I encourage you to take steps now so you make the most of it.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Joe F. Schmitz Jr., CFP®, ChFC®, CKA®, is the founder and CEO of Peak Retirement Planning, Inc., which was named the No. 1 fastest-growing private company in Columbus, Ohio, by Inc. 5000 in 2025. His firm focuses on serving those in the 2% Club by providing the 5 Pillars of Pension Planning. Known as a thought leader in the industry, he is featured in TV news segments and has written three bestselling books: I Hate Taxes (request a free copy), Midwestern Millionaire (request a free copy) and The 2% Club (request a free copy).

Investment Advisory Services and Insurance Services are offered through Peak Retirement Planning, Inc., a Securities and Exchange Commission registered investment adviser able to conduct advisory services where it is registered, exempt or excluded from registration.