When you leave a job, you may roll over money in your 401(k) plan into an IRA. But Wilton English, 60, of Shreveport, La., didn't want to wait that long. Earlier this year he rolled over $135,000 of 401(k) assets, which was invested mainly in mutual funds and company stock, into an IRA direct-brokerage account with American Century.
Although he still works for the same public utility, English requested and received an "in-service" distribution.
Technically, employees 59 1/2 or older can tap into their 401(k) savings without penalty, but it is unusual for a plan to allow older employees to take distributions while they are still working. English's plan did.
"I wanted more choice of funds and to diversify into some investments that weren't available through my 401(k)," he says.
He continues to contribute 16 percent of his salary through payroll deductions to his 401(k) plan.
Taking a distribution while still working may be unusual, but wanting more control over retirement investments is not.
Laura Groark, vice president for retirement services at Fidelity Investments, the nation's largest 401(k) provider, says about 85 percent of workers who roll over retirement savings to Fidelity choose a direct-brokerage account.
"It's an increasing trend," says Groark. "People want the flexibility to buy stocks, bonds, CDs and mutual funds, and they like the idea of rolling over their retirement accounts without having to liquidate existing mutual funds or stocks."
If investors are too heavily invested in one category, such as their own company's stock, they can use a direct-brokerage IRA account to diversify their holdings.
Before selecting a provider for your IRA rollover account, ask about custodial, closing and transaction fees and what investment options they cover. Ask how often you can change your investment choices and whether you can execute changes by phone or over the Internet.
If you already have an IRA and decide to switch providers, you have two choices.
First, you can authorize a direct transfer from one custodian to another. With most major financial institutions, such transfers take only 10 days or so.
Or you can close your existing IRA, and as long as you reinvest the entire amount in the new IRA within 60 days, there will be no tax consequences. You'll have to fill out a distribution form that will ask you if you want income taxes withheld. Just say no.