In-service rollover: can you move a 401(k) while employed?

Plans each have their own rules about whether you can do an in-service rollover, at what age, and with which funds. Certain plans open the door only once an employee has reached 59½.

That limit is worth knowing about when your goal is a crypto IRA. Getting a current employer's 401(k) into a crypto IRA works only via an in-service rollover, and only when the plan permits it. Funds left behind in a former employer's plan follow a different path, since those can be rolled over whenever you like.

You can move money into an IRA through a direct rollover or receive it yourself first, but receiving it yourself means withholding and a deadline. When you withdraw, the plan hands the money to you, and the law requires it to hold back 20% for federal tax. That withholding applies even when you intend to move the money into an IRA afterward.

Whatever portion never makes it into an IRA gets treated as taxable income. Being under 59½ can also bring a 10% additional tax on the taxable part.

Here's an example. Say you're 45, you take out $20,000, you're in the 22% federal tax bracket, and your state charges 5%. That works out to $4,400 in federal tax, $1,000 in state tax, and a $2,000 additional tax, so you'd keep $12,600 of the $20,000. If that same $20,000 had gone into a traditional IRA through a direct rollover instead, the whole amount would have stayed invested, with no tax due and no 10% charge at this point.

How the money travels decides what it costs you. You have two options.

• Direct rollover. The money moves from your plan directly to the custodian, which is the firm that will hold your IRA. Because the money never passes through your hands, nothing is withheld, and moving it into a traditional IRA costs no tax now. If you move pre-tax money into a Roth IRA instead, you'll owe income tax on it that year.
• Indirect rollover. Your plan pays you, minus the 20% it holds back. From there, you get 60 days to deposit the complete amount into an IRA, including the withheld 20%. In practice, that withheld portion has to come out of your own savings.

Cash out $20,000 and the plan keeps $4,000. Going the indirect route, you'd have to come up with that $4,000 from somewhere else within 60 days so the entire $20,000 lands in the IRA.

1. Check with your plan, or look at its plan rules, to see whether in-service rollovers are permitted and from what age. Every plan makes this call on its own.
2. Open an IRA at a custodian that offers the investments you're after, such as crypto.
3. Request a direct rollover from your plan to that custodian. Doing it this way means no 20% gets held back.
4. When the funds show up, pick your investments within the IRA.

The crypto IRA custodians listed here charge a fee to buy, and some add a yearly account fee on top. iTrustCapital, for instance, charges 1.0% each time you buy or sell, and there's no yearly account fee. With Public (Alto CryptoIRA), you pay 1.25% every time you buy or sell, plus a monthly charge of 0.05% of your assets.

This table shows what it would cost to buy in with $10,000 or $50,000 at each custodian, and what you'd pay each year after that if you didn't trade. It runs from the lowest to the highest yearly fee at $10,000.

On a phone you see the $10,000 columns. For any other amount, use the crypto IRA comparison.