I am often asked the following question by individual company 401(k) retirement plan participants.
“How can I get around the poor mutual fund options on my company 401(k) retirement plan menu?”
For most company 401(k) retirement plan participants, the answer can be found on their SDBA (self-directed brokerage account) or brokerage window option.
SDBA’s are brokerage accounts within your company 401(k) retirement plan. These accounts allow you to invest in stocks, bonds, exchange-traded funds, mutual funds and other securities that are offered in a separate account in addition to your main company 401(k) retirement plan menu.
Roughly 40% of company 401(k) retirement plans today offer the SDBA or brokerage window.
This account is truly “self-directed.” You are not locked into a fixed menu of expensive and poor-performing mutual fund options. Instead, you can invest your company 401(k) monies in a wide array of stocks, bonds, and mutual funds. Even better, you can own lower-cost exchange-traded funds (ETFs).
It has always surprised me that the lack of awareness of this great company 401(k) retirement plan account option. Historically, only 3% to 4% of individual company 401(k) retirement plan participants with access to a brokerage window use it.
There may be a small annual fee to maintain the SDBA account. And you may also be charged a transaction fee to buy and sell securities. But when you consider the upgrade to lower annual fees and improved investment performance, the SDBA account is well worth the time for you to look in to.
During your working career, the first thing you want to do is to fund your company 401(k) with as much of your money and company-matching contributions as possible.
Next, you don’t want to let your company 401(k) retirement plan sponsor (your employer) or provider, (Fidelity, Schwab, Vanguard, etc.) limit your investment options.
The SDBA company 401(k) retirement plan account option is a small price to pay for lower annual costs and the freedom to own better-performing mutual fund or ETF options.
Ric Lager
Lager & Company, Inc.
