This article will help you with your initial assessment of the Self Directed Brokerage Account (SDBA) among your 401k investment options, which may include ETFs or exchange traded funds.

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What you need to know about the SDBA is that it expands the investment choices open to you, well beyond the main menu of mutual funds offered by your plan provider. Ideally, it will allow you to use lower costing, better performing ETFs, exchange traded funds. You will need to look at your particular plan to see what new investment options are available.

Some SDBAs open your 401k to the full range of investment options available in an IRA account. While, other SDBAs may limit your choices to yet another, significantly larger menu of mutual funds (over 300). This is sad because it complies with the letter of the law but not the spirit of the intent of the Pension Protection Act of 2006 which sought to expand the choices available to the Plan Participant (you) and address the self-dealing among Plan Providers and the Mutual Fund Industry.

Assuming your plan now opens you up to a broader range of investment options, you need to look for three things.

• First, is there a limit to the amount of your plan assets that you may journal over to the SDBA option;

• second, are there any fees associated with the account other than transaction fees for the purchase and sale of investment product; and,

• third, does your plan provide for the pre-tax payment of independent, third-party, investment advice directly from your plan assets?

If there is a limit on the amount you can journal over to the Self Directed Brokerage Account that is OK assuming you can journal enough over to justify the effort. However, if there are any annual fees associated with just having the SDBA, you may find that the costs are prohibitive and you are better off with the mutual fund choices on the Main Menu.

If the plan provides for the tax-free payment of third-party, independent investment advice (which is no different than paying for the management fees inside the mutual funds on the Main Menu) this would be ideal. There is no requirement for you to use third-party, independent investment advice; but, it can be very helpful; particularly if it includes help with the selection, monitoring and alerts on the assets in your account.

Every plan is a little different and you will need to look at your own. If there are no annual fees and you can journal enough of your plan assets over to the Self Directed Brokerage Account to justify the effort, then you are ready to really take control of your 401k investments

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Enjoy unlimited access to 7 short, video tutorials which will quickly take you step-by-step through this easy process. Videos range in length from 4 to 13 min. averaging about 10 min. Just click here. 

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