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Suppose a 401(k) contains mutual fund investments and is linked to a brokerage account holding various stocks, ETFs, mutual funds, etc.

What happens to those investments should the 401(k) be rolled over into another retirement account, be it another 401(k) or an IRA? Are the different investments simply "cut and pasted", or are they liquidated at market price and the resulting cash is credited into the new account?

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It is very uncommon that stocks would be directly transferred from a 401(k) to an IRA or another company's 401(k) during a rollover.

Usually the stocks are converted to cash at the current market price, and the cash is deposited in the new account where you'll need to re-invest it.

If you want to roll-over without cashing in the funds ("in kind" rollover), SOMETIMES you can do this if you do the rollover out of the company 401(k) to account with the same provider that the company used (e.g. Fidelity, Vanguard, etc.)

To even have a chance to pull this off you need to talk to your plan administrator and the provider directly. Even then they may not always let you do this.

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  • Does that mean that one would be taking a major loss if they're forced to roll over their 401(k) (by cashing out their investments) during a market crash/bear market? – ToniAz Jun 24 at 4:27
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    @ToniAz not if you quickly invest the money in similar funds (or the exact stocks) when the money has been moved to the new account. There might be up to a week when you're "out of the market" while the funds transfer over. – RonJohn Jun 24 at 4:35
  • I think it would be worth adding that mutual funds are usually brokerage specific. If you're invested in Fidelity's FXAIX then I really, really doubt the new brokerage firm wants to keep your money in Fidelity funds and pay their fees. The new broker is going to have their own version of the S&P 500. – MonkeyZeus Jun 24 at 14:16
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    In a bear market it doesn't make that much difference, if you stayed in the market your assets would still have lost value. The real risk of being out of the market is that you might miss out on some gains in a bull market. – JohnFx Jun 24 at 14:18
  • @ToniAz The danger is only if you happen to cash out just when the market hit bottom, and you missed some of the upturn. But if you're investing for the long term, the few days it takes to transfer the funds won't matter much. – Barmar Jun 24 at 15:13

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