Can an Employee Roll Over a 401(k) Into a Self-Directed IRA While Still Employed?

Though 401(k) plans are typically a good deal for employees, their investment options are often limited, and some plans have high management fees. In most cases, you cannot roll over a 401(k) into a self-directed individual retirement account until you leave the company. But there are exceptions, so if you're unhappy with your current plan, do research to see whether an "in-service rollover" is a possibility.


The biggest factor that can affect whether it's possible to roll over your 401(k) while still employed is your age. The law allows those who are 59 1/2 and older to roll over the full amount in the 401(k). If you are younger you might be able to roll over a portion of the money in your account -- vested employer contributions, after-tax contributions and earnings -- but not your primary contributions.

Company Rules

Even if you fit the age criteria, companies are not required to allow you to roll over your money while you are with them. Though most companies do allow in-service rollovers, your company might be one that doesn't. Check with your human resources department about company policy.


The process for an in-service rollover is similar to that for other 401(k) rollovers. You must first open a new IRA and then request that the 401(k) custodian make a direct transfer to it. If the custodian writes the check to you directly, this is a distribution on which you must pay taxes and possibly penalties.


Even if you're unhappy with your 401(k) plan, there are advantages to keeping it. For example, you can take a loan of up to $50,000 if you find that you are financially strapped. And when you retire, you could get a tax break from owning shares of your company stock if the money is in a 401(k), but not if it's in an IRA.