The Benefits of Using a Self-Directed Brokerage Account in Your 401(k)
02/19/2024
As a quick refresher, a 401(k) is a retirement account that is set up through your employer and sometimes offers a contribution match. For example, if you contribute 3% of your paycheck, your employer will match by contributing 3% of the company's money to your account.
One of the only downsides of a 401(k) is that the employer offers a limited number of investment options. If there aren’t any great options, your account’s growth potential is limited.
But there is good news! Some 401(k) plans offer a self-directed brokerage account (SDBA), an investment option that is not as well known. An SDBA allows you to transfer money from your 401(k)’s core account to a different sleeve within the 401(k). This new sleeve offers the flexibility to select from many more investment options, as opposed to only being able to choose from what is offered in the core account. Many times, the SDBA allows your financial advisor to manage this account for you with your permission. These benefits can lead to more growth within your account over time and can allow your advisor to more efficiently manage and track your progress.
State of Michigan employees like teachers and other public service workers hold accounts that would benefit from an SDBA. The State of Michigan uses Voya Financial to hold retirement funds for its employees, but Voya offers a limited number of investment options. However, Voya also offers a Charles Schwab Personal Choice Retirement Account, which is an SDBA.
This allows any State of Michigan employee to:
- Move their investments into this sleeve and choose from better investment options
- Allow their financial advisor to manage the account
Other benefits of an SDBA include:
- No tax implications
- A low cost for the benefit it offers (varies by plan)
- Costs deductions directly from your account
Overall, this is a great way to increase the growth within your 401(k)!
*Do not use only this information to decide if an SDBA is right for you. Please reach out to me with any questions so that we can discuss your specific situation. I never charge for meetings or advice; I only get paid directly from accounts that I manage.
*This is not meant to be an exhaustive list. This is simply a baseline to follow. Please talk with me about your specific situation. I never charge for meetings or advice; I only get paid directly from accounts that I manage.