Some background:

  • have no plans to leave current company anytime soon, so (short of borrowing against my 401k balance to invest outside the 401k) I can't get the funds out
  • want to max out my 401k contributions as my company very generously matches 25% of my contributions w/ no limit, so not looking for solutions of the form "make your contributions to IRA instead"
  • company's current 401k provider (Vanguard) has a "Brokerage Option" which I could use, but...
    • only 50% of 401k balance can be shifted to Brokerage account
    • $50/year maintenance fee (that's << 2% of the balance I'd maintain, so acceptable to me, just FYI)
    • commissions aren't awful like a few years ago, but still nothing like my preferred broker (this bothers me quite a bit)
    • severely limited options-trading privileges - e.g. only buy calls, sell covered calls - not sure can even write cash-covered puts, definitely no spreads (this is not an issue for most, I understand)

Has anyone else explored self-directed 401k at their work?

Are terms/limitations generally better/worse than I've described?

  • 1
    2% a year in fees (or even close) is WAY too much. Typical real annualized returns on the stock market are 4%. You really think you can do well enough to beat that by 2%? Consistently? Or even come close? If you're really that good, you're in the wrong industry.
    – user296
    Commented Feb 18, 2011 at 21:13
  • @fennec - I believe OP meant 0.2%, based on 50/18500, or 0.5% based on 50/9250. If you add the extra 25% to the denominator it's an even lower percentage, and every year it gets lower still.
    – TTT
    Commented Oct 20, 2018 at 5:50

4 Answers 4


My employer matches 6% of my salary, dollar for dollar. So you have a great benefit. The self-directed side has no fees but $10 trades. No option trading. Yours basically allows you to invest your own funds, but not the match. It's a restriction, agreed, but a good plan.

  • Awesome, thanks for the add'l data point! I'll see about putting together a consolidated comparison of constraints/costs from the various data points if this thread collects a few more responses.
    – Jon S
    Commented Feb 16, 2011 at 5:07

My employer matches 1 to 1 up to 6% of pay. They also toss in 3, 4 or 5 percent of your annual salary depending on your age and years of service. The self-directed brokerage account option costs $20 per quarter. That account only allows buying and selling of stock, no short sales and no options. The commissions are $12.99 per trade, plus $0.01 per share over 1000 shares. I feel that's a little high for what I'm getting. I'm considering 401k loans to invest more profitably outside of the 401k, specifically using options.

Contrary to what others have said, I feel that limited options trading (the sale cash secured puts and spreads) can be much safer than buying and selling of stock. I have inquired about options trading in this account, since the trustee's system shows options right on the menus, but they are all disabled. I was told that the employer decided against enabling options trading due to the perceived risks.


I use the self-directed option for the 457b plan at my job, which basically allows me to invest in any mutual fund or ETF. We get Schwab as a broker, so the commissions are reasonable.

Personally, I think it's great, because some of the funds offered by the core plan are limited.

Generally, the trustees of your plan are going to limit your investment options, as participants generally make poor investment choices (even within the limited options available in a 401k) and may sue the employer after losing their savings. If I was a decision-maker in this area, there is no way I would ever sign off to allowing employees to mess around with options.

  • Do they charge something like the $50/year "maintenance fee" mine does?
    – Jon S
    Commented Feb 15, 2011 at 22:59
  • And do they limit your self-directed portion to 50% of total balance?
    – Jon S
    Commented Feb 15, 2011 at 23:00
  • Is it employer's legal liability that limits options choices, or brokerages? Possibly both, I guess.
    – Jon S
    Commented Feb 15, 2011 at 23:03
  • With my plan, we're charged $15 to start, plus $15 annually. You are restricted from transferring if your self-directed account balance exceeds your core option. I work for a large US State government though, so they have considerable buying power when bidding out this sort of service. Commented Feb 16, 2011 at 0:26

I have managed two IRA accounts; one I inherited from my wife's 401K and my own's 457B. I managed actively my wife's 401 at Tradestation which doesn't restrict on Options except level 5 as naked puts and calls. I moved half of my 457B funds to TDAmeritrade, the only broker authorized by my employer, to open a Self Directed account. However, my 457 plan disallows me from using a Cash-secured Puts, only Covered Calls. For those who does not know investing, I resent the contention that participants to these IRAs should not be messing around with their IRA funds. For years, I left my 401k/457B funds with my current fund custodian, Great West Financial. I checked it's current values once or twice a year. These last years, the market dived in the last 2 quarters of 2015 and another dive early January and February of 2016. I lost a total of $40K leaving my portfolio with my current custodian choosing all 30 products they offer, 90% of them are ETFs and the rest are bonds. If you don't know investing, better leave it with the pros - right? But no one can predict the future of the market. Even the pros are at the mercy of the market. So, I you know how to invest and choose your stocks, I don't think your plan administrator has to limit you on how you manage your funds. For example, if you are not allowed to place a Cash-Secured Puts and you just Buy the stocks or EFT at market or even limit order, you buy the securities at their market value. If you sell a Cash-secured puts against the stocks/ETF you are interested in buying, you will receive a credit in fraction of a dollar in a specific time frame. In average, your cost to owning a stock/ETF is lesser if you buy it at market or even a limit order. Most of the participants of the IRA funds rely too much on their portfolio manager because they don't know how to manage. If you try to educate yourself at a minimum, you will have a good understanding of how your IRA funds are tied up to the market. If you know how to trade in bear market compared to bull market, then you are good at managing your investments. When I started contributing to my employer's deferred comp account (457B) as a public employee, I have no idea of how my portfolio works. Year after year as I looked at my investment, I was happy because it continued to grow. Without scrutinizing how much it grew yearly, and my regular payroll contribution, I am happy even it only grew 2% per year. And at this age that I am ready to retire at 60, I started taking investment classes and attended pre-retirement seminars. Then I knew that it was not totally a good decision to leave your retirement funds in the hands of the portfolio manager since they don't really care if it tanked out on some years as long at overall it grew to a meager 1%-4% because they managers are pretty conservative on picking the equities they invest. You can generalize that maybe 90% of IRA investors don't know about investing and have poor decision making actions which securities/ETF to buy and hold. For those who would like to remain as one, that is fine. But for those who spent time and money to study and know how to invest, I don't think the plan manager can limit the participants ability to manage their own portfolio especially if the funds have no matching from the employer like mine. All I can say to all who have IRA or any retirement accounts, educate yourself early because if you leave it all to your portfolio managers, you lost a lot. Don't believe much in what those commercial fund managers also show in their presentation just to move your funds for them to manage. Be proactive. If you start learning how to invest now when you are young, JUST DO IT!

  • 2
    This might be a good answer, but it is hard to tell. Please take a couple of minutes to break it into paragraphs. Commented Apr 29, 2016 at 21:40

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