Another 401(k) question

[steve-in-kville]

Many thanks to all the folks that replied to my previous thread on this subject a few weeks ago. I was offered, and accepted, a position a company today. Although their 401(k) match isn't the best I've seen, its still better than most programs.

One question I did have that I forgot to ask before: Are 401(k) plans limited to mutual funds, or can I trade individual stocks/bonds? I guess I'm asking if its like a normal brokerage account where an investor can put their money where ever they please.

steve

 

[Bob W]

I guess I'm asking if its like a normal brokerage account where an investor can put their money where ever they please.

Generally no. You'll have a limited selection of mutual funds to choose from. For example, the 401k that I had was through Principal Financial Group, so I could only pick from a list of Principal mutual funds. Your company will probably set up a meeting between yourself and the 401k salesman. He'll have a packet of info for you, including a list of available investment choices.

If you set up an IRA with a brokerage in addition to your 401k, that IRA can be invested in individual stocks, bonds, and no-fee mutual funds (if offered at that brokerage). But you can't by real estate, gold nuggets, or beanie babies and call it an IRA.

-Bob

 

[steve-in-kville]

Thanks for the reply. Makes sense.

steve

 

[Bob W]

You ~may~ be eligible for a tax-sheltered IRA in addition to your 401k if you're interested in buying individual stocks or funds not available through your employer's program. It depends on how much money you earn, how much you invest in the 401k, etc. I've seen some online calculators to figure the amount.

I'm sure other folks know more about this stuff than I do; I'm just the only one still awake tonight.

-Bob

 

[Gollnick]

One question I did have that I forgot to ask before: Are 401(k) plans limited to mutual funds, or can I trade individual stocks/bonds? I guess I'm asking if its like a normal brokerage account where an investor can put their money where ever they please.

It depends on your company's plan. Usually not. Whenever you buy or sell, there's a fee. But, your company is paying those fees. The companies that administer 401K plans cut special deals with the investment providers (often just another division of their same company) to reduce those fees because of the volume that the 401K plan will do. So, you're generally confined to just a few investment choices that such a deal has been arranged with. But, a well-designed plan will have enough options to give you diversity.

But, regardless of what investment options you're limited to, invest as much as you absolutely can up to the limit. The tax advantage swamps any sub-par nature of the investments themselves.

 

[bammann45]

I know with my company you can set up a "brokerage link" and trade whatever stocks/mutual funds you like with 401K money. I've been satisfied with the index fund offerings of my company so I haven't opted to do it....