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Can I Buy Stock With My 401k VERIFIED

There is also a Roth 401(k), which is offered by fewer employers than a traditional account. You contribute money that's already been taxed; then, when you withdraw money in retirement, you do not pay taxes. For more on the difference between a traditional and Roth 401(k), read this article.

can i buy stock with my 401k


Like a savings account or individual retirement account (IRA), a 401(k) itself is simply a type of financial account. Once you contribute money to your 401(k), you must then invest the money in stock or bond funds, otherwise it will remain as cash.

You can begin withdrawing money penalty-free at 59 in most cases. If you withdraw money before that age, you will be hit with a 10% early withdrawal penalty and pay income taxes on the distributions. You can also take a 401(k) loan, which needs to be repaid, including interest. Learn more about that here.

Still, you don't want to go all in on one stock or investment, particularly if a rocky market makes you uneasy and anxious, or likely to do something drastic, like pull your money out of your account.

You'll want to determine an appropriate asset allocation, or how much of your investments will be in stocks (also known as equities) and how much will be in "safer" investments, like bonds. Stocks have the potential for greater returns, but can be more volatile than bonds. Bonds are more stable, but offer potentially lower returns over time.

But think about your investing horizon. If you have decades until you're going to retire (or take distributions), then you can afford a bit more risk. You might choose an 80-20 stock mix for now. When you're older, you'll start scaling that back, depending on your goals and, again, your appetite for risk. Experts suggest checking that your investments are properly aligned with your risk tolerance each year and rebalancing as necessary, though how often you actually do will vary based on personal preference.

No matter how many funds you're offered, you'll need to do a bit of research before you make your selections. One way to assess each fund you're offered is to search its name via Morningstar, an investment research firm. On Morningstar's site, you'll be taken to a profile page for the fund, which will list its fees, performance over time and what companies, sectors, stocks and/or bonds make up the fund. Morningstar also provides a star rating for each investment's performance.

You can also search the fund's name on Google, suggests Tass Zigo, an Illinois-based certified financial planner, to research the holdings (what companies comprise the fund), its allocation (the split between stocks and bonds) and more.

Over the past few years, mutual fund and ETF expense ratios have been trending down, which is a win for investors. You can find funds tracking the S&P 500 with expense ratios of hundredths of a percent. In 2018, the average expense ratio of passive funds was 0.15% (and 0.67% for active funds), per Morningstar. Some brokerages even offer zero-fee index funds, though those might not be available in your 401(k) plan.

Beyond fees, you also want your investments to be diverse, or spread across different sectors. You can likely achieve this diversity and low cost via an index fund. These funds follow a market benchmark, like the S&P 500, so they cover large swaths of the market and are inexpensive for financial companies to manage. Investing in index funds is known as "passive investing," because fund managers aren't actively picking companies they think will perform well; they're simply following a stock index.

"Someone may find that they would like a more or less risky mix of investments than what's in the target-date fund they are considering," says Pressman. "In that case, they can select a date farther into the future for more risk, or sooner for less. Don't get too bogged down on the date, but consider the general mix of stocks and bonds."

Finally, remember that while the stock market has historically increased around 10% per year, that's not guaranteed, and there will be periods when it falls. Experts also expect returns to be lower, around 4%, over the next decade than they have been the previous 10 years.

More options aren't always better, though, especially if you're new to investing and are unsure what to choose. Below, I explain 401(k) brokerage accounts in more detail, along with who may want to consider them and who is better off staying away.

A 401(k) self-directed brokerage account, also known as a 401(k) brokerage window, is an alternative to the traditional mutual funds -- collections of stocks and bonds -- and annuities, which are contracts with insurance companies, commonly available through 401(k)s. Your employer picks a brokerage firm to work with, and you create an account with the firm and invest your retirement savings in mutual funds, individual stocks and bonds, exchange-traded funds (ETFs), and more -- with all the tax advantages of a traditional 401(k). However, options trading and borrowing on margin are not allowed through these accounts.

But if you don't know much about investing, this apparent advantage could end up costing you. You may not diversify your investments enough or could end up making emotional decisions, like selling a stock that has been doing poorly lately even though it has historically done well. This could hamper the growth of your retirement savings.

You also have to watch the cost. The brokerage firm may charge you fees for its services, and the investments you choose may come with their own fees, like the expense ratios on mutual funds. These can eat into your profits and may leave you worse off than you would have been if you'd stuck with the mutual funds offered through your employer.

Next, look into the account maintenance fees and any other fees associated with the investment products you're considering. Ideally, you can keep these at or below 1% of your assets. That means you'll pay $1,000 or less per year for every $100,000 you have in the account. If you plan to employ a financial adviser to help manage or offer suggestions for your 401(k) brokerage account, don't forget to factor in those fees as well.

If a 401(k) brokerage account isn't a good fit for you, go with one of your employer's investment selections instead. This is the safer bet if you don't have the time or interest to learn more about investing. These are your retirement savings at stake, so you don't want to take unnecessary risks.

You can bet that almost every plan will have large-cap stock funds. These are funds made up entirely of large-cap stocks, of stocks with a market capitalization of over $10 million. Large-cap stocks make up the vast majority of the U.S. equity market, so your 401(k) will almost certainly have multiple funds to choose from that invest in them. Notable large-cap funds include the Fidelity Large-Cap Stock Fund (FLCSX) and the Vanguard Mega Cap Value ETF (MGV).

You can also be confident that your plan will include an international stock fund. This is a mutual fund made up of stocks of companies outside the U.S. Some, like the Vanguard Total International Stock Index (VGTSX), combine international stocks from both developed and emerging markets. Others will invest in only one or the other, like the Fidelity Total Emerging Markets Fund (FTEMX). Many financial advisors will recommend a good mix of domestic and international stocks.

Jim Barnash is a Certified Financial Planner with more than four decades of experience. Jim has run his own advisory firm and taught courses on financial planning at DePaul University and William Rainey Harper Community College.

So Appleby suggests asking your employer if they would accommodate the purchase of shares of the stock in an IRA. If yes, speak with an IRA custodian about their operational requirement for processing such a purchase, or shop around for an IRA custodian that specializes in private purchases of non-publicly traded securities, and the like.

If your employer and an IRA custodian would accommodate the transaction of buying the employer stocks in your IRA, you could roll over the amount from your 401(k) to your traditional IRA, and then use cash from the rollover to purchase the shares in your IRA, says Appleby.

**Options are a leveraged investment and aren't suitable for every investor. Options involve risk, including the possibility that you could lose more money than you invest. Before buying or selling options, you must receive a copy of Characteristics and Risks of Standardized Options issued by OCC. A copy of this booklet is available at It may also be obtained from your broker, any exchange on which options are traded, or by contacting OCC at 125 S. Franklin Street, Suite 1200, Chicago, IL 60606 (888-678-4667 or 888-OPTIONS). The booklet contains information on options issued by OCC. It's intended for educational purposes. No statement in the booklet should be construed as a recommendation to buy or sell a security or to provide investment advice. Call The Options Industry Council (OIC) helpline at 888-OPTIONS or visit for more information. The OIC can provide you with balanced options education and tools to assist you with your options questions and trading.

You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free) or through another broker (which may charge commissions). See the Vanguard Brokerage Services commission and fee schedules for full details. Vanguard ETF Shares are not redeemable directly with the issuing fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value. is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. 041b061a72


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