Expert: Allen - 9/15/2008

Question
Allen,

My company's 401(k) is with Fidelity.  I have six stock mutual fund options, two bond fund options, and a money market option for investing.  All of the stock funds are down year to date.  I would like to move the money in my 401(k) into a Roth IRA at my bank (including my employer's vested contribution, if possible).  I'll have more options for investing the money, and I would expect a higher rate of return.  Am I allowed to do this?  If so, should I watch out for any penalties, fees or restrictions?  

Thanks,

Charles

Answer
Your contributions can only be moved out of the plan and into an IRA under the following circumstances - death, disability, termination of employment or retirement. So the answer to your first question is no.

Money contributed by your employer can be moved out under other circumstances, but only if the plan document permits it. And it is very unlikely that your document will allow for this.

More importantly, if you terminated employment and asked the plan administrator to transfer your assets to a Roth 401k, this could only be done if your other taxable income for the year was below certain amounts. Furthermore, the Roth may not be the way to go even if it is available. The money taken from the plan would be taxed now. So you'd have substantially less to invest.

In addition, very few stock funds are up this year. And just because a fund is up this year, it is not necessarily a good investment for the long term.