You can move an IRA to a money market account without penalty, and in most cases it’s routine. The IRA is a tax wrapper; what sits inside it is your choice, and swapping stocks or bonds for a money market holding doesn’t close the account or trigger a distribution. The safe ways to do it are two: reallocate inside your current IRA if the custodian offers a money market option, or use a direct trustee-to-trustee transfer if you’re moving to a different institution. The one path that causes trouble is taking a check yourself and redepositing it, which the IRS treats as an indirect rollover and surrounds with rules that are easy to break.
The Safe Ways to Make the Move
If your current custodian already offers a money market fund or sweep, you don’t need to transfer anything. Log in, sell your existing holdings, and buy the money market option. It’s an internal trade. No forms, no IRS reporting, no waiting period beyond the normal one or two business days for the trade to settle.
If you want to move the IRA to a different bank or brokerage that offers a better money market product, use a direct transfer, sometimes called a trustee-to-trustee transfer. The money goes straight from the old custodian to the new one without passing through your hands. The IRS doesn’t treat this as a distribution, so nothing is withheld, no 60-day clock starts, and there’s no limit on how often you can do it.1Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
The Path That Causes Penalties
An indirect rollover is what happens when the old custodian sends a check to you personally and you deposit it into the new IRA yourself. This is where people get hurt. Three rules kick in at once.
First, the custodian withholds 10% for federal income tax unless you specifically opt out. That means the check you receive is smaller than your actual balance. Second, you have exactly 60 days from receipt to deposit the full original amount — the withheld portion included — into the new IRA. If you can’t cover that 10% gap from other savings, the shortfall becomes a taxable distribution.1Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Miss the 60 days entirely and the whole amount is taxable that year.2Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts If you’re under 59½, add a 10% additional tax on top of the regular income tax.3Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
Third, the IRS allows only one indirect IRA-to-IRA rollover per 12-month period across all of your IRAs combined. Do a second one and it’s treated as an excess contribution, which triggers a 6% excise tax for every year the money stays in the account.4Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts Direct trustee-to-trustee transfers don’t count toward this limit.
The takeaway is simple: if a check is going to be written with your name on it, restructure the move as a direct transfer instead.
What “Money Market” Actually Means Inside an IRA
Two different products share the name, and which one you’re buying depends on where the IRA lives.
A money market deposit account sits at a bank or credit union and behaves like a higher-yield savings account. It’s covered by FDIC insurance up to $250,000 per ownership category at each insured bank.5FDIC. Deposit Insurance FAQs
A money market fund is a mutual fund holding short-term Treasury bills and top-rated corporate paper. It aims to hold a steady $1.00 share price, but that price is a goal, not a guarantee, and the fund isn’t FDIC insured.6Vanguard. What Is a Money Market Fund and How Do They Work If your IRA is at a brokerage, this is what you’ll be buying. SIPC protects up to $500,000 of your brokerage holdings, with a $250,000 sublimit for cash, but only if the brokerage itself fails; it doesn’t cover the fund losing value.7SIPC. What SIPC Protects
Bank deposit accounts usually pay less than money market funds. The national average for money market deposit accounts sat around 0.43% APY in early 2026, while money market mutual fund yields have generally run higher depending on the fund and rate environment.
Step by Step
Staying at Your Current Institution
Sign in, go to the trade or exchange screen, sell your existing holdings, and buy into the custodian’s money market fund or sweep. Trades settle in one to two business days. Nothing gets reported to the IRS because nothing left the account.
Moving to a New Institution
Open the new IRA first. The receiving custodian will give you a transfer request form authorizing them to pull the funds from your old custodian. You’ll need the existing IRA account number and the current custodian’s name and address.
Some transfer paperwork requires a Medallion Signature Guarantee. That’s a specialized verification stamp provided by a bank, credit union, or brokerage, and it’s different from a notary stamp; a notary won’t work.8Investor.gov. Medallion Signature Guarantees – Preventing the Unauthorized Transfer of Securities You’ll typically need to appear in person with photo ID. Many institutions provide the guarantee free to existing customers; some charge.
Once the request is submitted, the old custodian liquidates your holdings and sends the proceeds directly to the new institution by wire or check. Expect one to three weeks. Watch the transfer through your online portal and confirm the final balance matches what left the old account.
Fees Worth Asking About First
The move itself is penalty-free when done correctly, but that doesn’t mean it’s free.
- Outgoing transfer or account closing fee at the old custodian, often $50 to $150. This is the fee people most often don’t see coming. Some custodians waive it for larger balances; ask before you start.
- Annual custodial or maintenance fee, sometimes $25 to $75, though many large brokerages have dropped it.
- Expense ratio on a money market fund, industry averages around 0.25% of assets annually. Some providers run below 0.15%.
- Low-balance fees on some money market deposit accounts if you fall below a minimum.
Required Minimum Distributions Still Apply
Sitting in a money market account doesn’t exempt an IRA from required minimum distributions. If you have a traditional, SEP, or SIMPLE IRA, you must begin annual withdrawals at age 73; if you were born in 1960 or later, that starting age is 75.9Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Roth IRAs have no RMD during the original owner’s lifetime.
If you hold multiple traditional IRAs, the RMD is calculated separately for each but can be taken from any one of them.10Internal Revenue Service. RMD Comparison Chart – IRAs vs. Defined Contribution Plans A money market IRA works well for that role. You draw the cash directly without having to sell stock or bond positions at an awkward time.
When the Move Makes Sense
A money market allocation preserves capital; it doesn’t grow it. It fits when you’re close to retirement and want to shield part of your portfolio from swings, when you’re building a liquid reserve for upcoming RMDs, or when you’re waiting out uncertainty before reinvesting.
Moving an entire IRA to money market and leaving it there for decades is a different decision. Money market yields have historically struggled to keep pace with inflation over long stretches, and the tax-deferred compounding that makes an IRA valuable works best on assets that actually grow. For most people the useful version of this move is partial: hold one to three years of planned withdrawals in a money market position and keep the rest invested.