Self-Directed Brokerage Accounts: Retirement's Hidden Gem?

An older man looks at his laptop while sitting at his desk at home, a trading website on the monitor beside him.

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By Scott M. Dougan, RFC, Investment Adviser

published 16 April 2025

If you’re nearing retirement, you’ve probably been told your investment options inside a 401(k) are limited. The usual advice? Either wait until age 59½ to access your funds, use a hardship withdrawal (if you qualify) or, in some cases, take advantage of the Rule of 55. But what if you didn’t have to wait?

There’s a lesser-known option that gives you far more control and flexibility over your retirement assets: a self-directed brokerage account (SDBA). Despite being available in many employer-sponsored 401(k) plans, SDBAs are one of the most underutilized tools for retirement investing and can unlock the power of your 401(k).

For those who know how to use SDBAs, they can be the key to building a stronger portfolio and optimizing retirement income.

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Here are some reasons why SDBAs deserve a closer look and how they can give you an edge as you transition into retirement.

What is an SDBA, and why aren't more people using it?

A self-directed brokerage account is a feature within some 401(k) plans that allows investors to go beyond their employer’s limited fund menu. Instead of being stuck with a handful of mutual funds or target-date options, you gain access to a much wider selection of investments, including:

Stocks
Exchange-traded funds (ETFs)
Bonds
Mutual funds outside your employer’s default options

Sounds like a great deal, right? So why don’t more people take advantage of SDBAs? For one, many employees aren’t even aware this option exists. And even those who do know about them may hesitate to stray from their employer’s pre-selected investments.

There’s also the perception that managing an SDBA is complicated or risky, but that’s where working with a financial professional can make all the difference.

How an SDBA can supercharge your retirement strategy

1. It ditches the one-size-fits-all approach

Most employer-sponsored 401(k) plans are built for the masses, not for individuals with unique retirement goals. The result? A rigid set of investment options that might not be aligned with your specific risk tolerance, retirement timeline or long-term wealth strategy.

An SDBA allows you to break free from this cookie-cutter approach. With access to a broader selection of investments, you can:

Fine-tune your portfolio based on market conditions and personal risk tolerance
Reduce reliance on high-fee mutual funds that eat into your returns
Take advantage of growth opportunities that aren’t available in a traditional 401(k) menu

For seasoned investors or those working with a financial professional, this level of control can be a huge advantage.

2. It keeps your investments working through retirement

Many investors assume their portfolio should become more conservative as they near retirement. But with longer lifespans and increasing costs, this traditional approach can be problematic.

Consider this:

Today’s 65-year-olds can expect to live 20 to 30-plus more years
Inflation will erode your purchasing power over time
A traditional target-date fund may shift too aggressively into bonds, limiting your growth potential

An SDBA lets you customize your retirement investing strategy so you’re not forced into an overly conservative approach. Instead of blindly following a fund’s pre-set allocation, you can:

Maintain appropriate equity exposure to keep up with inflation
Balance risk and reward based on your actual needs, not a generic retirement age
Ensure your portfolio is built for longevity, not just for your first few years of retirement

3. It helps you avoid emotional investment mistakes

The biggest threat to long-term investment success isn’t market volatility — it’s emotional decision-making. During market downturns, investors panic and sell. When stocks are booming, they chase performance. Both behaviors destroy returns over time.

A financial professional working with your SDBA can help you:

Avoid reactionary mistakes during market swings
Stick to a disciplined investment strategy
Ensure your portfolio aligns with your retirement goals instead of short-term emotions

Studies show that working with an adviser can add significant value, not just by optimizing investments, but by helping investors stay on course.

4. It allows you to keep more of what you earn

Here’s the best part: Gains inside an SDBA are still taxed the same way as a traditional 401(k). You get all the benefits of tax-deferred growth while enjoying a broader range of investment choices.

Plus, by working with an expert, you can integrate advanced tax-efficient withdrawal strategies, estate planning and charitable giving techniques — things that simply aren’t possible with a standard 401(k) plan.

Things to keep in mind before using an SDBA

As powerful as an SDBA can be, it’s important to understand the limitations:

Not all employers offer SDBAs. Check with your plan provider to see if it’s an option
Some plans cap how much you can transfer. Some employers limit the percentage of your 401(k) balance that can be moved into an SDBA (e.g. 50%)
SDBAs require more involvement. Unlike a traditional 401(k), an SDBA requires active management, either by you or a trusted adviser

If you’re comfortable making investment decisions or working with a professional to help guide the process, these challenges can be easily managed.

Is an SDBA right for you?

If you’re looking for greater control over your retirement savings, access to better investment opportunities and a strategy that adapts to your needs, an SDBA could be a powerful addition to your retirement plan.

It’s not for everyone. But for those who want more than just the standard 401(k) experience, it’s a compelling alternative that can help maximize retirement wealth and protect your financial future.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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As Founder of Elevated Retirement Group, Inc., Scott Dougan has built a comprehensive retirement planning company focused on helping clients grow and preserve their wealth. Under Scott’s leadership, a team of experienced financial advisers, Certified Financial Planners (CFP®) and CPAs use tax-efficient strategies, professional investment management, income planning and proactive health care planning to help clients feel confident in their financial future — and the legacy they leave behind. Scott has also written a book titled “Exceptional Retirement: Tools and Strategies for Retiring on Your Terms” (click here to request a free copy). You can find Scott on YouTube by clicking here, where he creates educational videos for those near retirement. If you would like to talk to Scott’s team, you can schedule a call by clicking here.