Fidelity Employer 401K Can't Be Rolled Over?

Question

Hi BP,

I recently switched employers, and am getting setup with the employer provided 401k custodian (Fidelity). My goal is to take advantage of the % match my employer offers and roll it over to a self directed IRA, or a Solo 401k account where I can use it to invest in real estate. The person I talked to on the phone, mentioned that in accordance with the restrictions my employer has put in place, I can't roll the funds over until I leave the company?

I will reach out to my HR/Benefits specialist, but was curious if anyone has heard this type of scenario before? I feel like if I chose to stop participating in the 401k program they can't keep my funds hostage until I leave. I could be wrong.

Any insight is appreciated.

Thanks BP!

Pete

Brian Eastman · Answer

@Pete Perez

What you have encountered is common.  While 401k plans can allow for what are referred to as "in-service distributions" to rollover to another plan, most do not.  The firms that offer the plans make their money selling the investments, so they want a captive set of funds.

If you have savings from prior employment, do not roll them into the new plan.  Those could go to a self-directed plan.

Even with the funds being trapped and the investment choices being less than stellar, I would suggest that you participate in the new employer's plan, at least to the maximum level they match.  The tax-deferral and company match are essentially guaranteed initial return on investment for each dollar you set aside.  Eventually you will change jobs, and at that time you will have a nice chunk of savings that you can roll over to a more flexible plan of your choosing.

Kevin Childers · Answer

@Justin Windham what I did was stop allocating monies to my 401K all together. Not really any advantages of feeding it when I do not receive company match and the returns are very low. Plus on the other end of my working life I am required to make yearly withdraws regardless if I need the money or not. My solution was to allocate the monies I was using for my 401K to my Roth. I have a lot more flexibility inside it than I do with my 401K plus the expenses are cheaper.

Pete Perez · Answer

@Kevin Childers @Russell Brazil

@George Blower @Dmitriy Fomichenko

Thank you all for the responses. I will still participate in the 401k, like Brian mentioned. It is too bad there isn't more flexibility.

Russell Brazil · Answer

They are correct. Your money stays put until you leave your job in almost every instance.

Justin Windham · Answer

@Kevin Childers

That's a pretty common sentiment among those with funds locked in with a current employer plan. Sometimes I get questions as to whether more employers will allow better features in their plans and maybe even alternative asset options. It's not likely to change anytime soon. In addition to the grip Wall Street has on most plan professionals, there are significant expenses and administrative burdens involved with employers and administrators expanding options across a workforce.

Kevin Childers · Answer

@Pete Perez I wish there was more options for me as well. The funds I self manage are returning an average of 12-14% over the last 3 years while the employer managed funds bring in a nice 3% return for me.

George Blower · Answer

@Pete Perez

If you are still working for the company that sponsors the full-time employer 401k plan, you may not be able to transfer that 401k unless one of the following triggering events are met:

• Reaching retirement age. This is usually defined by the plan, and typically ranges from age 55 to 65; however, the actual retirement age may vary among plans. As such, the plan must be consulted to determine its particular requirements and definitions.
• Termination of employment
• Termination of the plan
• Death, in which case the distribution would be taken by the beneficiary

However, some current employers may allow for partial or full-transfers from 401k and profit sharing plans even if one of the aforementioned triggering events have not been satisfied.

One way of determining if your current employer will allow you access your retirement funds while still working for them, is to check the summary plan description (SPD) for the existing plan. The SPD is required to be written in a language or format that is easily understood by participants. Larger plans usually make the SPD available on the company’s benefits website. If the SPD is not available, the plan administrator or human resources department should be contacted for a copy of the most updated version.

Dmitriy Fomichenko · Answer

Pete, unfortunately while your 401k is with the current employer your funds are locked until you either leave the company or reach retirement age. When that happens you will be able to rollover the account into self-directed IRA or Solo 401k. While practically anyone can setup SD IRA, not so for the Solo 401k. There is a misconception that being a RE investor automatically qualifies them for Solo 401k, which is not the case. Make sure you understand the eligibility requirements.

Kevin Childers · Answer

@Pete Perez Yes, my employer is the same way. On top of that we have to let them invest a certain percentage in a safe harbor account for us that they direct, the rest we can self direct. The only way we can roll or cash out is to either retire or quit. We also have the option of leaving our monies in the 401K account if we so choose. I would never recommend to cash out though.

Fidelity Employer 401K Can't Be Rolled Over?

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