Every 401(k) retirement plan offers a default mutual fund menu. The mutual funds selected by your employer and plan administrator. The menu of mutual funds limits the fiduciary liability issues for both parties.
Individual 401(k) participants may also have a self-directed brokerage option.
A self-directed brokerage account (SDBA) option opens many new 401(k) investment opportunities. SDBA’s also allow for the buy and sale of stocks, bonds, and exchanged-traded fund (ETF’s).
An SDBA 401(k) account looks and feels like your retail brokerage account. Only inside your company 401(k) account.
Find out if your current 401(k) retirement plan account offers the SDBA option. There are two most popular company 401(k) retirement plan SDBA accounts. At Charles Schwab, it is the PCRA (Personal Choice Retirement Account). At Fidelity, it is the Fidelity Investments BrokerageLink account.
A casual Google search provide articles on the dangers of self-directing your 401(k). You can also find the same concerns about credit cards, home mortgages, and car insurance.
If you are reading this blog post, you are an educated professional. You manage personal and career risks daily. I do not think that an expanded menu of 401(k) investment options is something that you cannot take on.
If you have the SDBA option, you have a decision to make. Are you comfortable with the time commitment required to self-direct part of your 401(k)?
There is a professional investment advice option. A Registered Investment Advisor (RIA) can provide a fiduciary level of investment advice. That investment advice can include a 401(k) retirement plan SDBA account.
Schwab or Fidelity can each provide more details. Take your time and read all the disclosures and agreements. There are sure to be costs involved in your SDBA account.
The cost to open a company 401(k) retirement plan SDBA account is usually between $50 and $100. The costs per trade vary. I have seen free trades in an SDBA account. Some trade fees range from $6.95 per trade all the way up to $35 per trade.
Ric Lager
Lager & Company, Inc.
