Can You Roll a 401(k) Over to a Treasury Only Money Market Fund?
Treasury-only money market mutual funds are considered to have the highest degree of safety. Employees who participate in company sponsored retirement plans -- such as 401ks -- usually have several investment elections to choose from, one of which already may be a short-term government money market fund. If such a fund election is not available in the plan, there may only be limited circumstances to gain exposure to one. A "rollover" is one possible option.
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U.S. Government Treasury Money Market Funds, MMFs
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Treasury-only money market funds -- which invest in short-term securities of the U.S. government -- hold nothing but short-term U.S. debt securities. Treasury-only MMFs are not tax-sheltered. Unless held in tax-sheltered accounts like 401ks or IRAs, the income generated by them is potentially taxable on state/local levels, not federally taxable, however. While they carry the full faith and credit of the U.S. government, they also provide the least amount of return. These funds are often used when absolute safety of principal is required, such as in times of high market volatility or when a considerable degree of safety is desired, when approaching a planned retirement.
401k Rollovers
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A 401k rollover is an IRS-recognized movement of plan assets to another plan. The value of the account and its tax-sheltered status is preserved. Examples of when rollovers may be desirable might be termination of employment/re-employment elsewhere or retirement. Some companies have provisions for "in-service" rollovers that permit plan assets to be rolled to another tax-sheltered account while still employed. In some cases, the participant may be required to roll over a 401k upon termination if its balance is too small.
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Rollover Individual Retirement Accounts, IRAs
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IRAs are self directed tax-sheltered accounts which are similar to 401ks, but differ in the amount of maximum contribution. An IRA that has a designation of "Rollover IRA," a title it is given when established preserves 401k rollover eligibility to be rolled into another employer's 401k plan at a later date.
IRAs can be established with mutual fund distributors, like Fidelity or Vanguard, or with a brokerage firm. The advantages of IRAs typically is that many thousands more investment options are available, including Treasury-only MMFs.
Other Alternatives
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If the current plan does not offer a U.S. Government Securities Money Market Fund and you are still employed with no option for an in-service rollover, there may still be very stable, high-quality investment elections available. These are sometimes identified as "Stable Value Funds," "Managed Income Funds" or "GICs," an acronym for "guaranteed investment contract." While they maintain a stable value of $1, the don't carry the same guarantee of the government. Rather, they are guaranteed by large highly-rated insurance companies.
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References
- "U.S. News & World Report"; Rethinking 401(k) Rollovers; Emily Brandon; July 2008
- Fidelity: Supplement to the Fidelity U.S. Treasury Money Market Fund, Fidelity Government Money Market Fund, and Fidelity Money Market Fund June 29, 2010 Prospectus
- IRS.gov: 401(k) Resource Guide - Plan Sponsors - General Distribution Rules
