Traditional 401ks are an essentially risk-free retirement plan to have in your portfolio. However, options within the plan have expanded to give employees more opportunities for profits. One of these is a Brokerage Window. It’s an often overlooked detail in most new 401k plans, but if done correctly, it can add a level of flexibility to your investments, even if options are limited. So, how does a brokerage window work? Continue reading to find out.
How Does It Work?
If you have a 401k with a known broker, it might be referred to as a “self-directed brokerage account.” It grants the holder the ability to buy and sell investment assets through the distributor's platform. These assets can include stocks, bonds, ETFs, among others, but that all depends on the brokerage firm. Normally, the employee is fully responsible for what happens with their investments through the brokerage window. Naturally, since it’s through a broker, you’re subject to fees and commissions for using the account.
Should I Use It?
The fees alone are enough to turn investors away from the brokerage window. Plus, you get little help with your account and are subject to the broker’s regulations for brokerage windows. If you don’t want to risk your core 401k, it might be best to stay within it and look to open a personal account. One positive is that you can continue to contribute to your 401k if you experience losses. If you want to explore this option, make sure to do your research as to how your 401k distributors handles self-directed brokerage accounts.