Can a Money Market Account Be Qualified?

by Mike Parker

The Internal Revenue Service considers any account that satisfies the Internal Revenue Code in both form and operation to be a qualified account. One of the most common examples of a qualified account is the Individual Retirement Account. IRAs provide working taxpayers with a means of setting aside a portion of their earnings for their retirement years in a tax-advantaged, trustee-based account. You can put a wide variety of investments inside your IRA, including money market accounts.

Money Market Account

A money market account, sometimes referred to as a money market demand deposit account, is a type of demand-deposit account offered by a bank. Money market accounts typically invest in short-term government securities or other federally insured financial instruments with a maturity of less than one year. Money market accounts typically require a larger initial deposit than a regular savings or checking account, but they usually also pay a higher rate of interest than other demand-deposit accounts. Most money-market accounts are insured by the Federal Deposit Insurance Corporation. You can deposit funds from your qualified account in a money market account.

Money Market Mutual Fund

A money market mutual fund is a special type of mutual fund that only invests in high quality, short-term debt instruments. Money-market mutual funds are required by law to invest only in conservative, safe instruments such as government securities, short-term federally insured bank certificates of deposit, and high-quality commercial paper from large American corporations. Money market mutual funds are offered by mutual-fund companies, not banks. While they have many similarities with money market demand deposit accounts, they also have significant differences, including the fact that they are not insured by the Federal Deposit Insurance Corporation or any other federal agency. You can deposit funds from your qualified account in a money market mutual fund.


Money market demand deposit accounts and money-market mutual funds are both conservative investment options for your qualified individual retirement account. The rate of return offered by money-market accounts may be considerably lower than some other available investment options. Some trustees allow IRA holders to invest in a combination of securities inside their IRA, and use a money market account to hold the funds pending investment. An investment in a stock mutual fund or high-quality corporate bonds may provide a greater rate of return in the form of interest, dividends and capital gains. As these funds are paid by these securities into your IRA, they may be automatically swept into your money market demand deposit account or money market mutual fund where they will continue to earn interest while you decide whether you wish to invest those funds in a different security.

Prohibited Investments

The Internal Revenue Service does not maintain a list of investments that are acceptable for inclusion in a qualified Individual Retirement Account. The IRS does note a few investments that may not be included in a qualified IRA. You may invest in a money market demand deposit account or a money market mutual fund for your qualified IRA. You may not invest your IRA money in collectibles such as rugs, artwork, gems, stamps or alcoholic beverages. You may not invest your IRA money in collectible coins, with the exception of certain gold and silver coins minted by the U.S. Treasury Department.

About the Author

Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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