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Rules for In-Service Retirement Plan Distributions

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Your retirement plan may be your greatest investment. This money will support you when you can no longer work. Because of this, it's important that you protect this money from loss by making wise investment choices and balancing the risk with the reward you get in your investments. However, you may also need to use this money while you're still working. If so, an in-service distribution may be appropriate for you.

  1. Age Requirement

    • The IRS does not generally limit withdrawals from your retirement account. As long as the plan complies with IRS rules and regulations, and is active, you may make withdrawals from your retirement plan once you've reached age 59½ without incurring any penalty for early withdrawals made prior to that age.

    Benefit

    • An in-service withdrawal is one you make from your retirement account while you're still working for your employer. There are other rules, other than making sure your plan administrator allows in-service withdrawals. Simplified Employee Pensions (SEP IRAs), Savings Incentive Match Plans for Employees (SIMPLE IRAs), 401(k) plans, 403(b) plans and other retirement plans all qualify for an in-service withdrawal.

    Disadvantage

    • Not all employers allow in-service withdrawals. While the IRS permits these withdrawals, it does not mandate them. So, you cannot force your employer to give you money from your retirement account while you're still working for him. Additionally, any withdrawals made prior to age 59½ are subject to a penalty of 10 percent on the amount you withdraw. This may significantly reduce the amount of money you receive from your retirement account.

    Consideration

    • Don't take money from your retirement plan unless you absolutely need it. Your retirement account provides you with the funds you'll eventually live on. If you take this money before you leave your employer, your retirement savings has to support you for longer than it otherwise would have to. One of several things will happen. You'll either draw a lower retirement income than you otherwise would have if you had waited, you will run out of money prior to your death, or you will have to earn a higher rate of return than you expected so that you can live off your savings until death.

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