Can I swap personal and 401k assets?

Question

Is it possible to swap assets between personal accounts and retirement accounts?

Say I have $100 worth of one fund in my 401k, and I think that fund is better as a short-term investment, and I also have $100 in another fund which I own in a personal account, and I think the second fund would serve well as a long-term investment. To put the asset bought after tax and available to sell at any time into the 401k and pull what's in the pre-tax 401k out would make no net difference in the current value of the retirement account, or are there other obstacles?

Answer 1

Sort of, but not the way you describe it.

You can't just move assets into a 401(k) - you can only contribute cash from your paycheck (unless this "personal account" is another retirement account, e.g. IRA, and your 401(k) accepts rollovers, but I'm assuming you mean a regular taxable account).

Additionally, you can't just move assets out of the 401(k). You could take a distribution, selling the asset and withdrawing the cash, but it would count as taxable income, be subject to a penalty depending on your age, so you would end up with less money than the asset was worth. A distribution may not even be allowed by your plan if you are still employed.

What you could do is just exchange the assets (sell one and buy the other) within their current accounts, with two caveats:

• the sale in the taxable account may create a tax liability (if sold for a gain, or a tax deduction if sold for a loss)
• 401(k) plans often have limited investment options available; you may not be able to purchase your desired asset within the plan.

Answer 2

No, because

1. you can only contribute to a 401(k) via payroll deductions, and
2. 401(k) plans are designed for long term investments, not short term investments (unless you're already retired).

It doesn't matter, though, because money is fungible.

Thus:

1. within the confines of your 401(k) plan, move that $100 of 401(k) money to a long term investment, and
2. move $100 in the other account to the short term investment.

If your 401(k) options are limited, reduce your 401(k) contribs and put that money into a traditional IRA at a company with a wide variety of investment options.