Understanding In-Service Withdrawals
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2/15
E24095-15A
For broker/dealer use only. Not for use with the public.
[Name of Financial Professional, Company Name]
[Name of Pacific Life Wholesaler, Pacific Life]
Please note that this presentation has been designed to provide general,
introductory information. Neither Pacific Life nor its representatives offer
legal or tax advice. Clients should consult their attorneys and tax advisors
as to the applicability of this information to their specific circumstances.
Pacific Life and its affiliates do not provide any employer-sponsored
qualified plan administrative services or impartial investment advice and
do not act in a fiduciary capacity for any plan. Please contact your plan
administrator for any questions relating to your 401(k) plan.
[Name of Financial Professional] and [Company] are not affiliated with
Pacific Life or its affiliated companies.
Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by
Pacific Life & Annuity Company. Product availability and features may vary by state.
For broker/dealer use only. Not for use with the public.
Agenda

In-service withdrawals defined

IRA rollover drawbacks vs. benefits

Requesting a rollover

Case study

Summary
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In-Service Withdrawals

Many participants are unaware that they may be
able to access plan assets prior to retirement

An in-service withdrawal provision allows
participants of an employer-sponsored plan to take a
distribution from the plan while still employed

Withdrawals are often eligible for rollover
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In-Service Withdrawals

Rules vary depending on the type of employersponsored plan:
– Defined contribution (DC) plan
– Defined benefit (DB) plan

Employers may allow an in-service withdrawal
feature, but they are not required to do so

The law lays out allowable withdrawals, and plans
may be more restrictive than the law allows
For broker/dealer use only. Not for use with the public.
What DC Plan Assets Can Be Withdrawn?

Pretax elective deferrals
– If age 59½ or a result of hardship

Employer contributions
– Profit-sharing or matching contributions
– Fully vested and “two-year bake” rule satisfied

After-tax contributions

Rollovers from other retirement plans
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What DC Plan Assets Cannot Be Withdrawn?

Elective employee salary deferrals
– Unless triggering event is met

Non-vested employer contributions

“Two-year bake” rule
– Fewer than five years of participation
– Employer contributions must be held for at least two years
– Not applicable with five years or more of participation
For broker/dealer use only. Not for use with the public.
Possible DC Plan Restrictions

Plan may impose
– Restrictions on class of assets
– Restrictions on frequency and amount of withdrawals
– Possible suspension of plan participation and
employer match

May have specific paperwork

Contact employer for details and request copy of
summary plan description
For broker/dealer use only. Not for use with the public.
In-Service Distribution from DB Plans

Historically permitted in-service distributions at
normal retirement age (NRA) only (e.g., age 65)

Beginning in 2007, employers may amend plan
allowing in-service feature at age 62 even if NRA is
greater than 62

Hardship withdrawals prior to age 62 are not
permitted
For broker/dealer use only. Not for use with the public.
Hardship and Nonhardship

Hardship distributions are not eligible for rollover
– Plan has option to permit “hardship distribution”
– If granted, participant will have to suspend elective
contributions for at least six months after hardship
distribution is received

Nonhardship distributions are generally eligible for
rollover into:
– Eligible retirement plan and avoid income tax and
additional 10% early distribution tax
– Roth IRA and avoid additional 10% early distribution tax
but not income tax
For broker/dealer use only. Not for use with the public.
Advantages of In-Service Rollovers

Wider array of investment options

Greater distribution options

Not subject to 20% mandatory
withholding on distributions
IRAs and qualified plans—such as 401(k)s and 403(b)s—are already
tax-deferred. Therefore, a deferred annuity should only be used to
fund an IRA or qualified plan to benefit from the annuity’s features
other than tax deferral. These include lifetime income, death
benefit options, and the ability to transfer among investment
options without sales or withdrawal charges.
For broker/dealer use only. Not for use with the public.
Disadvantages of In-Service Rollovers
Potential loss of:
 Exception to additional 10% early distribution tax if
separated from service after attainment of age 55 and
older
 Amounts available for loans
 Ability to delay required minimum distributions
(RMDs) beyond age 70½
 Tax advantages using net unrealized appreciation
(NUA) strategy
 Inherited Roth IRA to beneficiaries
 Lifetime income provided through plan annuity options
For broker/dealer use only. Not for use with the public.
Some Reasons Not to Roll to an IRA
Current qualified plan may offer:

Lower cost funds

Lower administrative expenses

Greater level of service

Loan features
For broker/dealer use only. Not for use with the public.
How to Do an In-Service Rollover
Step one:

Contact Human Resources
– Does plan allow for in-service rollovers?
– Obtain clarification of specific plan
requirements AND restrictions on
frequency/amounts/types of contributions
– Obtain proper forms and instructions
– Consult tax advisor
For broker/dealer use only. Not for use with the public.
How to Do an In-service Rollover
Step two:

Establish an IRA (traditional or Roth)
rollover account
– Determine investment product
For broker/dealer use only. Not for use with the public.
Hypothetical Case Study:
Defined Contribution
John, age 58, 20 years of service,
XYZ Company
 401(k) balance totals $850,000
– $400,000 in salary deferrals
– $350,000 in matching contributions
(XYZ stock)
– $100,000 in rollover contributions

John is not happy with plan
investment options
– Considering diversification of his
retirement assets
For broker/dealer use only. Not for use with the public.
Hypothetical Case Study:
Defined Contribution

John verifies that his plan allows in-service
distributions of:
– Rollover contributions at any time
– Nonhardship withdrawals of employer stock contributions
– Salary deferrals beginning at age 59½

Diversify stock position and rollover contributions
now directly to IRA

Plans to roll salary deferral contributions at age 59½
For broker/dealer use only. Not for use with the public.
Why Employers Might Adopt an
In-Service Option for Employees

Appealing to employees

Mitigate employer liability

Lower participant balance might
be less likely to take legal action
against the employer
For broker/dealer use only. Not for use with the public.
Act Today
Check your book for clients who are:

Employed and active participants
in 401(k), profit-sharing, stock
bonus, or defined benefit plans

Concerned that a large portion of
their retirement assets are allocated
to employer company stock

Looking for investment options not
offered at the plan level
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Retirement Strategies Group
Available to do CE and client seminars
Insurance
CPA, CFP®, PACE
E-mail:
RetirementStrategiesGroup@PacificLife.com
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More Information
Contact our
Advanced Marketing Group
(800) 722-2333, ext. 3939
AdvMkt@PacificLife.com
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This material is not intended to be used, nor
can it be used by any taxpayer, for the purpose
of avoiding U.S. federal, state, or local tax
penalties. This material is written to support
the promotion or marketing of the
transaction(s) or matter(s) addressed by this
material. Pacific Life, its affiliates, their
distributors, and respective representatives do
not provide tax, accounting, or legal advice.
Any taxpayer should seek advice based on the
taxpayer’s particular circumstances from an
independent tax advisor or attorney.
For broker/dealer use only. Not for use with the public.
Pacific Life refers to Pacific Life Insurance Company and its affiliates, including
Pacific Life & Annuity Company. Insurance products are issued by Pacific Life
Insurance Company in all states except New York and in New York by Pacific Life &
Annuity Company. Product availability and features may vary by state. Each
insurance company is solely responsible for the financial obligations accruing under
the products it issues.
Variable insurance products are distributed by Pacific Select Distributors, LLC
(member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company and
affiliate of Pacific Life & Annuity Company. Variable and fixed annuity products are
available through licensed third-party broker/dealers.
(Newport Beach, CA)
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