In general, you are allowed to move funds from one retirement account to another similarly titled retirement account without the transfer counting as a distribution. This process is referred to generically as an IRA Rollover. There are many reasons you could be doing an IRA Rollover, and there are different tax consequences or no tax consequences depending on the type of rollover you are performing.

The most common IRA Rollover is moving funds from an employer-sponsored retirement account, such as a 401(k), into a traditional IRA at a custodian of your choice. Most employer-sponsored retirement accounts only allow this transfer to happen “out of service,” meaning after your termination or retirement date with the firm, but this varies by employer and by component of the plan.

At our firm, we receive a generous year-end bonus based on the firm’s financial health and our performance. This gets contributed to a component of our 401(k) plan called “Employer Profit Sharing.” The profit sharing is on a “vesting schedule,” meaning the longer you work at the firm the more of the assets in that part of the plan are yours. If you leave the firm before all the assets are fully vested, then you own the percentage that was vested and the firm recaptures the percentage that has not yet vested.

Unlike the other components of the plan, our firm allows us to rollout our vested profit sharing balance even while we are “in service.”

We currently use a company called RiversEdge as our third party administrator to run many of the day-to-day aspects of the plan. To do an in-service rollout of your vested profit sharing balance, you use the “RiversEdge In-Service Withdrawal Request Form.” These forms are found on the RiversEdge participant website by selecting “My Plan” and then “Plan Forms & Instructions.”

Like most financial paperwork, the form is more confusing than it needs to be, so here are the steps to ensure you fill it out correctly:

Part A is for your employer to sign, so you can skip that.

Part B is your basic information, which you should be able to easily fill out.

Part C is your reason for withdrawing funds. In my example, you would select “Distribution of Profit Sharing Balances.”

Part D talks about a “30-day election period” and is where you actually sign the form saying you want both the prior sections as well as the sections-to-come to be implemented.

Part E is where you select how much to move out. In my example, you would select “Maximum Amount Available.”

Part E1 is where you elect to use a “Direct Rollover,” which in most cases is the only wise selection to make.

Part E2 should be skipped if you are doing a direct rollover as you do not want any withholding at all.

In Part E3, “Wiring / ACH Instructions” should be filled out for a direct rollover. This is where you put the routing number, account number, and receiving financial institution’s information.

Part F and all the later subsections relate to any Roth balances that your 401(k) has. The profit sharing portion of your 401(k) plan is not normally allowed to be Roth and thus all of these orange part F sections can likely be skipped in this example.

After you finish with the form, you can submit it to RiversEdge and they will handle the transfer to whatever account you listed in Part E3.

After doing an IRA Rollover out of your 401(k) and into your traditional IRA Rollover, you may want to consider starting a Roth conversion strategy.

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