Still Working, Still Planning: Why In-Service Distributions Can Be a Game Changer

For high-earning professionals, retirement isn’t a date—it’s a strategy. And one of the most overlooked ways to take control of that strategy, even while you’re still working, is through an in-service distribution (ISD).

We’re often asked this question:

 “Can I move my 401(k) into an IRA while I’m still working—so I can take full advantage of active, personalized portfolio management?”

In many cases, the answer is yes. And when done strategically, it can unlock greater control, tax advantages, and long-term flexibility.

Let’s explore how in-service distributions work—and when they make sense as part of a bigger-picture plan for your future.

What You Gain with an In-Service Distribution?

An in-service distribution allows you to move all or part of your 401(k), 403(b), or pension assets into an IRA—without leaving your job. As long as the transfer is done as a direct rollover, your funds retain their tax-deferred status and the transaction is not taxable.

The IRS permits in-service distributions from:

• 401(k) or 403(b) plans once the participant reaches age 59½

• Defined benefit pensions or profit-sharing plans, sometimes at earlier ages (e.g., age 55 or based on years of service), depending on the plan document

But just because you can, doesn’t always mean you should—yet for many executives, this move creates flexibility, personalization, and greater alignment with long-term goals.

A Tale of Two Executives

Consider the stories of Michael and Susan, both successful professionals at different stages in their careers:

MICHAEL, age 59½, is a senior vice president who has spent 25 years with his company. He’s still passionate about his work but is beginning to think about his long-term financial independence. His 401(k) has grown substantially, but he feels limited by the investment options in the plan.

Because his plan allows for in-service distributions at 59½, Michael transfers a portion of his account into an IRA, enabling Gatewood’s investment team to tailor his strategy, diversify his portfolio, and begin creating a tax-smart income plan for future retirement.

SUSAN, age 67, is a chief operating officer who planned to retire at 65 but has decided to continue working for a few more years. She wants to avoid unnecessary risk and better align her retirement assets with her estate plan.

Her company’s retirement plan permits in-service distributions after age 65, and she uses the opportunity to roll assets into a professionally managed IRA. This move gives her more flexibility in charitable giving, Required Minimum Distribution (RMD) planning, and tax-efficient withdrawals—while continuing to contribute to her 401(k).

Questions to Consider Before Making an In-Service Distribution

• Does your employer’s retirement plan allow in-service distributions?
  Not all plans offer this option, so the first step is to confirm availability through your plan documents or HR department.
• Are you old enough to qualify?
  Most 401(k) and 403(b) plans require that you reach age 59½ to take an in-service distribution without penalty. Some profit-sharing or pension plans may allow earlier access based on years of service.
• Would you benefit from broader investment flexibility?
  Employer plans typically offer a limited set of investment options. Rolling assets into an IRA can provide access to a wider range of strategies aligned with your goals and risk tolerance.
• Do you want more active portfolio management?
  If your plan is passively managed or lacks personalization, an IRA under Gatewood’s management may offer more proactive oversight and strategic alignment with your financial plan.
• Are you looking to incorporate advanced tax strategies?
  IRAs can unlock planning opportunities like Roth conversions, tax-efficient withdrawals, and Qualified Charitable Distributions (QCDs), which are harder to implement inside a 401(k).
• Are you preparing for retirement and want to build a withdrawal or legacy strategy?
  Making the move early can simplify your transition into retirement and help ensure your assets are structured for income, estate planning, and long-term preservation.

If you answered “yes” to more than one of these questions, an in-service distribution may be a valuable next step.

The Strategic Advantages & Smart Tradeoffs

The Advantages

Rolling assets into a Gatewood-managed IRA opens the door to a more expansive investment toolkit. Gone are the one-size-fits-all fund menus. Instead, you gain access to custom portfolios built with individual securities, ETFs, and even alternative investments—crafted around your objectives.

You also unlock:

• More proactive risk management
• Integrated tax planning (Roth conversions, QCDs, and withdrawal sequencing)
• Simplified estate coordination and beneficiary alignment
• Continued creditor protection under federal bankruptcy law, if the IRA is classified as a rollover*

*Note: Gatewood helps ensure that rollovers retain their ERISA-level protections by correctly classifying and documenting IRA rollovers.

Important Considerations

While an in-service distribution provides significant advantages, there are tradeoffs to be aware of:

• You lose access to 401(k) loan features. For most executives over 59½, this is rarely a material concern.
• Rollover IRAs¹ do not fall under ERISA’s federal creditor protections (outside of bankruptcy), which could matter in high-liability professions. We’ll help you evaluate based on your state’s protections and profession.
• IRAs require RMDs at age 73—even if you’re still working. In contrast, some 401(k)s let you defer RMDs while employed.

When Your Current Plan May Be Good Enough (For Now)

If your employer’s plan offers strong investment options, low costs, and you’re not yet focused on tax strategy or estate planning, staying the course may be appropriate—at least for now.

But if you’ve outgrown the plan’s limits, and want more alignment with your total financial life, then an in-service rollover may offer the clarity, control, and customization you deserve.

Why Gatewood for In-Service Distribution Management?

At Gatewood Wealth Solutions, we don’t just manage investments—we guide families through life’s most important financial transitions. Our in-service distribution process reflects that philosophy.

With us, you gain:

• A firm-to-family relationship built on trust, care, and your long-term purpose
• Integrated planning through our Total Client Deliverable—investments, cash flow, tax, and estate strategy in one plan
• An investment philosophy that focuses on risk management and long-term confidence
• No longer stuck with one-size-fits-all fund menu
• Disciplined, proactive management that evolves with your life and the market
• Clarity and confidence to navigate IRS rules, retirement timing, and plan complexity

Final Thought: It’s Not About Leaving Your Job. It’s About Taking Control.

Taking an in-service distribution isn’t about leaving your employer—it’s about taking control of your financial future.

If you’re ready for more flexibility, more strategy, and more confidence in your retirement plan, let’s start the conversation.

Your future self will thank you.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal.  No strategy assures success or protects against loss.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC

¹A plan participant leaving an employer typically has four options (and may engage in a combination of these options): 1. Leave the money in their former employer’s plan, if permitted; 2. Roll over the assets to their new employer’s plan, if one is available and rollovers are permitted; 3. Roll over to an IRA; or 4. Cash out the account value (38-LPL) show less

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.