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December 06, 2006
401(k) Brokerage Window
If you're interested in expanding your 401(k) investment options now is the time to speak up. Many companies are adding self-directed brokerage account options to their 401k plans. This trend is in direct response to employee demand for additional flexibility and control.
Based on questions I received when I posted my request for 401(k) data, many of you are unaware of brokerage windows and the benefits they can provide. A brokerage window, also known as an SDA, or self-directed account, gives 401(k) and 403(b) plan participants access to a wide range of investments including stocks, bonds, mutual funds, and options, just like an IRA.
Your employer chooses a broker for the brokerage window and you then have access to the full range of investments offered by that broker. There is a commission paid on all transaction within a brokerage window, and often, an annual fee is deducted as well.
Before you get too excited though, be aware plan sponsors often put more limitations on a brokerage window than you have in your IRA. Many limit the brokerage window to a percentage of your 401(k) assets. More often than not, there will be restrictions on commodities, options, collectibles and company stock, all of which are fair game in your IRA.
The advantages of a brokerage window are greater diversification, something your employer has a fiduciary responsibility to provide. The downside is that with greater choices will come dumber choices. At least, that is the fear of the employer and investment community at large. It is a fear that is not without merit.
The answer, in my opinion, is not trying to protect employees by limiting their choices, but to continue to step up financial education so that employees know how to do the right thing with their retirement money. It's the old thing about feeding the man a fish as opposed to teaching him to fish for himself. I prefer to teach people to fish for themselves.
If you're interested in lobbying your company for a brokerage window, you should put your request in writing and send it to the department that helps administer the plan, such as the Human Resources department. The more people you can get within the company to put pressure on the company, the more likely you are to get something done. It is not inexpensive for a company to change their plan to offer the brokerage window. But if they perceive you perceive it as a benefit, they just might do it.
Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.
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Kim Snider is an author, speaker and host of Financial Success Coaching, Saturdays at noon, on KRLD Newsradio 1080, Dallas - Fort Worth. This blog is primarily devoted to empowering individual investors with information to help them be good stewards of their money. Above all, it is about achieving true financial success. Kim's book, How To Be the Family CFO: Four Simple Steps to Put Your Financial House in Order is in bookstores now. Order yours from Amazon or other fine booksellers today.
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