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Question for the Money Doctors

Question submitted on Jan 30, 2019.

Question

My 401k can be roll over to another institution and then invest in money market without penalty in the same institution?

Answer

To avoid the 10% withdrawal penalty in this scenario, two conditions must be present: 1) you must no longer be working for the employer who sponsors your 401k plan (unless an “in-service rollover” option is available in the plan), and 2) you are 59 1/2 or older.  If both of these conditions are met, you can certainly withdraw the funds and invest in a money market account.   If you are under 59-1/2, you would have to “rollover” the funds into a new IRA, presumably at the same institution that your question references, prior to investing within the new account.

Keep in mind, though, that the entire withdrawal will be subject to income tax.  Depending on the size of your 401k balance, this could create a significant tax liability.

If you are concerned about market risk, many 401(k) plans will have a money market fund inside the plan. You could investigate this as an alternative to closing your account, but you may be missing out on the opportunity for growth.


For additional information visit http://www.360financialliteracy.org/

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