Why would someone lock up money by rolling it into a 401(k)?

I understand why someone might roll funds out of a 401(k) plan, but why would anyone under 59½ ever roll money into a 401(k) and lock it up?

Normally, withdrawals from a retirement plan trigger taxes and a penalty if taken prior to age 59½. Rollovers are transactions that allow the movement of funds from one retirement plan to another. When done right, no taxes are due.

There are many reasons to roll money out of a 401(k), with the most common being the employee leaves a job and prefers those funds be in an IRA. You typically have a much wider selection of investment options and are not required to meet any qualifications to get funds out of an IRA. If you need cash, you need only make the distribution request and be prepared to pay the taxes and any applicable penalty.

But 401(k)s and other retirement plans operate differently. Unauthorized distributions can disqualify a plan, causing severe financial consequences , including immediate income taxes and any applicable penalties for employees on their vested balances.

Despite the more complex rules, we regularly see funds rolled from IRAs into qualified retirement plans such as 401(k)s and 403(b)s. People do this because rolling funds into a plan often facilitates another maneuver and the funds are often still accessible.

Generally, 401(k) balances are considered "locked up" because participants need a qualifying event to take a distribution. These "distributable events" include severance from employment (e.g., resignation, termination or retirement), the disability or death of the participant, required minimum distributions (RMDs) starting at a certain age, and plan termination.

However, plans may include language allowing additional access under specific circumstances. They may allow in-service withdrawals of elective deferrals, including Roth and safe-harbor contributions, after a participant reaches age 59½; hardship withdrawals, subject to a slew of special rules; or withdrawals of non-Roth after-tax contributions and — notably, to your question — rollover contributions.