You can buy or sell target date funds on any business day the markets are open. The trade mechanics are simple, but the timing rules that actually matter to most investors are not about placing the order. They are about when you sell without a tax penalty, when the IRS forces you to sell, and when your fund company limits how often you can trade in and out.
Daily Pricing and When Your Order Fills
Most target date funds are structured as mutual funds. They do not trade minute by minute like a stock. The fund calculates one net asset value per day, after the major exchanges close. Orders submitted before the 4:00 PM ET cutoff get that day’s NAV. Orders placed after the cutoff, or on weekends and holidays, are filled at the next business day’s closing price.
You will not know the exact price when you place the order. You are committing to whatever the NAV turns out to be at the end of the day. Because brokerages and plan administrators batch orders internally, submitting your request by early afternoon is safer than cutting it close to 4:00 PM.
When you sell, the cash settles by the next business day under the T+1 standard that took effect in May 2024.1FINRA. Understanding Settlement Cycles: What Does T+1 Mean for You The proceeds are not available to move to a bank account until settlement completes.
Target Date ETFs Trade Throughout the Day
A newer option skips the once-a-day pricing. Some providers offer target date funds structured as exchange-traded funds, which trade throughout the session at market prices rather than at end-of-day NAV. BlackRock’s iShares LifePath series is the most prominent example, trading on the NYSE Arca.2BlackRock. iShares LifePath Target Date 2050 ETF The glide-path strategy is the same. You can buy or sell at 10:30 AM, and you see the price before you commit.
ETF shares trade at market price, which can sit slightly above or below the fund’s actual NAV. For long-term retirement investors making occasional contributions, that gap is negligible. If you want limit orders or intraday execution, the ETF structure gives you the control the mutual fund version does not.
How Often You Can Trade the Same Fund
Being able to trade every day does not mean your fund company will let you do it repeatedly. Target date mutual funds are built for long-term holding, and providers actively police short-term round trips. Fidelity tracks “roundtrip transactions” where you buy and then sell the same fund within 30 calendar days. A second roundtrip within 90 days triggers an 85-day block on new purchases in that fund. Four roundtrips across any Fidelity funds within 12 months blocks you from buying into any of their funds (except money market) for 85 days.3Fidelity Investments. Fidelity’s Excessive Trading Policy
Other fund families impose similar rules, and some charge short-term redemption fees for selling inside a set holding period. The specifics live in each fund’s prospectus. If you need the flexibility to trade often, the ETF versions carry fewer restrictions.
Selling From a Retirement Account Before 59½
The account holding your shares matters more than the fund itself. In a traditional 401(k) or IRA, every dollar you withdraw is taxed as ordinary income, no matter how long you held the fund. Withdrawals before age 59½ generally trigger a 10% early distribution penalty on top of that.4Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts State income taxes may apply as well, from 0% in states with no income tax up to over 13% in the highest-tax states.
Selling the shares inside the account without taking the money out is not a taxable event. The tax hits when the cash leaves the retirement account.
Exceptions to the 10% Early Withdrawal Penalty
The pre-59½ penalty has more exceptions than most people realize. The major ones:5Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
- Separation from service after age 55. If you leave your employer during or after the year you turn 55, you can take penalty-free withdrawals from that employer’s 401(k). This applies to the plan you are leaving, not to IRAs or plans from previous employers. Public safety employees qualify at age 50.
- Substantially equal periodic payments. You can withdraw a fixed annual amount based on your life expectancy, but the schedule must continue for at least five years or until age 59½, whichever comes later. Stopping early retroactively triggers the penalty on all prior distributions.
- Total and permanent disability.
- Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income.
- Qualified birth or adoption expenses, up to $5,000 per child, from either a 401(k) or an IRA.
- Federally declared disasters, up to $22,000 per qualified disaster event.
Some exceptions apply only to employer plans, others only to IRAs, and some to both. The IRS maintains a comparison table covering every exception and the account types that qualify.5Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Verify the specific exception before taking the distribution.
Selling From a Taxable Brokerage Account
Outside a retirement account, selling target date fund shares creates a capital gains event. Shares held longer than one year qualify for long-term capital gains rates, which are lower than ordinary income rates for most taxpayers. Shares held one year or less are taxed at your regular income rate.6Internal Revenue Service. Topic No. 409, Capital Gains and Losses There is no age-based penalty on a taxable account, so the timing question comes down to your holding period and your tax bracket.
When You Are Required to Start Selling
At a certain age the IRS stops letting you leave money in tax-advantaged accounts. For anyone turning 73 between 2023 and 2032, required minimum distributions begin in the year you reach age 73. Starting in 2033, that age rises to 75.7Federal Register. Required Minimum Distributions Under SECURE 2.0, Roth 401(k) accounts are exempt from RMDs during the owner’s lifetime. Traditional accounts are not.
Your first RMD can be delayed until April 1 of the year after you turn 73, but that stacks two distributions into one tax year: the delayed first one and the regular second one due by December 31. For most people, taking the first distribution in the year you actually turn 73 makes more tax sense.8Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Missing an RMD is expensive. The penalty is 25% of the amount you should have withdrawn. That drops to 10% if you correct the mistake within two years and file Form 5329, and the IRS can waive the penalty entirely if the failure resulted from a reasonable error you have since fixed.8Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
If you are charitably inclined and at least 70½, a qualified charitable distribution lets you send up to $111,000 per year directly from an IRA to a qualified charity. The transfer satisfies your RMD without adding to your taxable income.9Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs The money must move directly from the IRA custodian to the charity. Routing it through your bank account first disqualifies it.
What Happens When the Fund Reaches Its Target Year
Reaching the target year on the fund’s name does not force any transaction. You do not have to sell, and no money moves out of your account. The fund keeps operating with its most conservative allocation, emphasizing bonds, short-term Treasury inflation-protected securities, and cash equivalents.
Some fund families eventually merge the fund into a broader retirement income fund once it passes its target year. This happens automatically. Your shares in the old fund convert to shares in the new one at equal value. The fund stays fully liquid throughout. You can sell at any time, just as before the target date arrived.
Rolling Over Instead of Selling
When you leave an employer, you do not have to sell your target date fund shares to get them out of the 401(k). You can move them into an IRA without triggering taxes if the rollover is handled correctly. The cleanest method is a direct rollover, where your plan administrator sends the funds straight to your IRA custodian. No taxes are withheld, and no deadline applies.10Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
If the plan sends a check to you instead, the administrator must withhold 20% for taxes even if you fully intend to roll the money over. You then have 60 days to deposit the full original amount, including replacing that 20% from your own pocket, into an IRA to avoid income taxes and the 10% early withdrawal penalty. Miss the 60-day window and the IRS treats the entire amount as a taxable distribution.10Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
A rollover also opens up your investment choices. Employer plans often limit you to a handful of target date fund families, while an IRA lets you pick from nearly any provider. That is where many investors switch from a higher-cost plan option into a cheaper index-based target date fund without ever generating a taxable sale.