401(k) Plans With a Brokerage Window

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401(k) plans can seem a little confining if you have a little bit of investing sophistication. Because a 401(k) has to be offered by an employer, you’re stuck investing money into a plan with relatively few investing options compared to the almost limitless options of an IRA or traditional brokerage account.

Instead of thousands of choices, you have maybe 20—and those 20 might have fees associated with them that are ridiculously high.

As more people become sensitive to investing fees, some employers are now offering 401(k) accounts with a brokerage window. A brokerage window allows you to take advantage of the many other investment options outside of a normal 401(k). Yes, that includes stocks, ETFs, bonds, and even some lower risk trading.

How Does It Work?

The reason it’s called a brokerage “window” is that, much like an open enrollment period where you can sign up for and change your employee benefits, the window only opens at certain times of the year.

Most plans also specify an all or nothing approach; either you go all-in with this brokerage window or not. You can’t do half and half or some other percentage. Once you move to this type of account, you can treat your account just like an IRA.

The Benefits

Have you taken a good look at the options available to you in your company-sponsored 401(k)? Unless you work for a giant company, your choices are probably less than ideal.


Larger companies, because of their size, sometimes get better and more cost-efficient choices than smaller companies, but even larger companies may limit you to a couple of dozen funds.

What if you don’t want mutual funds? What if you want to invest in certain sectors, certain companies, or you like ETFs that drill down into certain areas of the economy? You probably won’t find that in your 401(k) options.

You’re also more able to precisely place the funds into your overall portfolio. If you have a healthy investing portfolio outside of your 401(k), you might find it hard to balance the two because your 401(k) money sits in very broad categories. How do you allocate funds to a certain sector when your 401(k) is simply invested in hundreds of large-cap stocks?

If you take advantage of the brokerage window, you can precisely allocate funds the way you would like.

The Downfalls

Along with the freedom that comes with the brokerage window comes a lot more risk. One of the reasons your employer gives you a measly few options is because studies have found that more options don’t lead to better choices. Not even the professional investors have a collectively impressive track record of bigger gains when given more choices.

A drawback of the brokerage window is finding yourself investment products you don’t understand or having a larger level of risk than most investors understand. Do you constantly have time to research the latest geopolitical news and how that will affect your oil stocks? How about Fed policy? Are you clear on how the Federal Reserve will affect your bond portfolio? You have a job and family and likely don’t have time for that level of research.

There are also the fees. Remember how we said that some of those choices in your 401(k) come with some hefty fees?


Less experienced traders often move their portfolio holdings around too much. Every move comes with a fee and those fees can add up fast.

The Best Option

No piece of advice works for everybody, but in general, for people who want to take advantage of a brokerage window, only do it if you have a strong history of creating winning investment portfolios or you have a trusted financial adviser who will help you. Your retirement funds aren’t what you'll use to learn how to invest. Protect your future by keeping your retirement funds in the hands of professionals or inside the confines of your 401(k). If you want to learn how to invest, start with an account that uses fake money. You can find these practice accounts free online. Once you can show strong gains for a year or more, graduate to a small account using real money and grow from there.

Leave your retirement funds to a professional and make sure they know if you have a brokerage window open to you.

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  1. FINRA. “Investing in Your 401(k).”

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