Why do my stock dividends have to be reinvested in my Fidelity 401k account? I would like to invest them where I think the best opportunities are.


Dividends from a 401k investment (a tax-deferred vehicle) are themselves considered earnings. Thus, they must remain in the same tax-deferred status. You cannot transfer 401k dividend earnings to a non-qualified plan without paying income tax (ordinary, not the lower qualified dividend rate) and possibly a 10% penalty (if you are under 59 1/2 years of age).

You may be able to do a rollover into a different tax-deferred vehicle such as an IRA or a different employer's 401k, though this is unlikely and would depend heavily on the circumstances and the plan rules.

Depending on your particular 401k plan, you may have a self-directed investment option, in which case you can use those dividends as you wish (including leaving them as cash for a time) but the major point is that the funds must remain in the same account to retain the tax-advantaged status.


By default capital gains and dividends are reinvested at Fidelity. However, they can be changed, and if I recall correctly, you can reinvest one and not the other if you wish.

See this page, login, and select your preferences.

Since this will direct you to a Fidelity login page, for extra safety google:

"how to not reinvest dividends fidelity" and click on the link that says:

How to Change Dividends and Capital Gains Distributions - Fidelity

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