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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
Related Content
- How to Capitalize on Self-Directed Brokerage Accounts
- Can I Hire a Financial Adviser to Manage My 401(k)?
- Seven Reasons to Avoid a Self-Directed IRA
- Can You Build a Retirement Income Plan With Both Risk and Reliability?
- Five Tax Strategies to Help Your Money Last in Retirement
-
The Most Tax-Friendly State for Retirement in 2025: Here It IsRetirement Tax How do you retire ‘tax-free’? This state doesn’t tax retirement income, has a low median property tax bill, and even offers savings on gas. Are you ready for a move?
-
Plan for Higher Health Care Costs in 2026: Projected Medicare Part B and Part D PremiumsIn 2026, Medicare participants will pay more for their health care. Part B costs are expected to rise more than 10%. Here's what you can do.
-
Plan for Higher Health Care Costs in 2026: Projected Medicare Part B and Part D Premiums
In 2026, Medicare participants will pay more for their health care. Part B costs are expected to rise more than 10%. Here's what you can do.
-
The Weak Dollar is Making a European Vacation Harder to Afford in RetirementTravel pros explain how you can afford a European vacation in retirement, despite a weak dollar.
-
Cash Balance Pension Plans: the Smart Way to Turbocharge Your RetirementCash balance plans can significantly boost your retirement strategy if you want a reliable, guaranteed income stream.
-
Avoid Medicare's 'Shadow Tax' With This Financial Expert's IRMAA-Busting TipsYou're cruising along in retirement, and then bam: Your Medicare premiums soar because your income crossed the limit. Take a breath. There could be a solution.
-
Grilling Season and ETFs: There's More Than One Way to Cook Up a PortfolioExchange-traded funds come in a multitude of 'flavors' these days, from passive to active to factor-based. Their flexibility is what makes them so delicious.
-
You Don't Want It, But You Should Plan for It Anyway: An Expert Guide to Long-Term CarePlanning for long-term care is crucial to protect your independence, family and financial stability against unexpected health events and rising care costs not covered by standard insurance.
-
Retire in the Canary Islands for Beaches and Natural BeautyRetirees enjoy Spain's Canary Islands, where life can be as hectic or chilled as you like. The one constant will be almost year-round mild weather.
-
The '120 Minus You Rule' of RetirementThe '120 Minus You Rule' updates an older retirement rule, with a twist. Here's how this approach to retirement portfolio construction can work for you.
