Self Directed 401k Essay

502 Words2 Pages

When you consider funding your retirement, a self-directed 401k plan may offer employees better options and opportunities to earn bigger investment returns and get more cash. Employer-supplied plans lay down a certain number of investment vehicles available for employees. But for self-directed plans, there is an unlimited array of investment options that provide more control.

What sets it apart is diversity. Employees who want to diversify portfolios and take advantage of employer-sourced retirement plans may choose self-directed 401k. Here, investment vehicles are limited to the trustee or plan administrator-recommended mutual funds, bonds or stocks. However, those employees who opt to self-direct assets may have other preferences not available …show more content…

A string of losses could lead to a good retirement plan into ruin. If the investor is an individual, he or she may incur added administration and transaction fees, which further decrease retirement assets. In the eyes of the employer, employees who choose to control asset investment through self directed plans are also at risk of liability.

There are a few employers who offer workers self-directed brokerage accounts but if the investment goes awry, the owners are the ones blamed. But if the employees chose a self-directed 401k and their assets invested in bonds, mutual funds and publicly traded stocks, how would it shape the plan? To avoid dismantling an employee-sponsored 401k, companies that also provide self-directed plans must limit such investments to mere percentage of an individual employee's contributions.

An employee can depend on trustees or plan administrators to choose the appropriate investments. The purpose of such a self-directed 401k is to gather individual resources with collective investments for the benefit of the group. The amounts that are collectively invested provide a better path to buy a bigger number of financial instruments. This is far greater than having individual investors shelling out smaller amounts. As such, a collective effort benefits the entire

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