Retirement Money Market Account
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Definition of 'Retirement Money Market Account'A money market account that an individual holds within a retirement account such as an IRA. In a retirement money market account, deposits are placed in low-risk investments like certificates of deposit, Treasury bills and short-term commercial paper. The account pays a relatively low rate of interest, slightly higher than a savings account, but provides liquidity and stability. For the account holder, it operates much like a checking or savings account. |
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Investopedia explains 'Retirement Money Market Account'A retirement money market account may be held within a Roth IRA, traditional IRA, rollover IRA, 401(k) or other retirement account. Unlike a regular money market account, a retirement money market account is governed by a retirement plan agreement. For example, the account holder may not be able to withdraw money from the account without paying a penalty until he or she has reached a minimum age, such as 59.5. As a benefit, however, the account balance may be allowed to grow tax free. A retirement money market account is a conservative investment that may be used as part of a diversification strategy within an overall retirement portfolio. Its value will remain stable regardless of what the stock or bond markets are doing. And unlike stocks and bonds, money market account balances held at a bank are FDIC insured up to $250,000 per depositor, per institution. A retirement money market account may also be used to store the proceeds of stock and bond sales as the account holder gets older and seeks more conservative holdings. In addition, money market accounts often have check-writing privileges, making it easy for retirees to withdraw retirement account funds as needed. While these accounts may pay a higher rate of interest than a generic savings account, a major drawback of retirement money market accounts is that they may not earn enough interest to outpace inflation, meaning that the account holder’s balance is effectively shrinking each year in terms of its purchasing power. |
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