Illiquidity
Nothing says illiquidity like a 401(k) plan. Can you sell any of your funds at any time? Sure, in most cases. Can you swap money between the funds in your plan whenever you want? Almost certainly. So, how is a 401(k) illiquid? Well, if you want access to your money without fear of penalty — as in, taking it out so you can carry it in your pocket — you’re out of luck unless you’re at least 59 1/2, suffer hardship or leave your job.
Imagine you’re 20 years old and just starting your first job. This means you might not see the money in your 401(k) for about 40 years. While this is great if you’re trying to build long-term wealth, it’s incredibly restrictive when it comes to liquidity.
