Traditional 401k vs. Self Directed 401k

401K plans can be self directed or they can be a traditional plan which is managed by somebody else. So, what are these plans and which one best fits you? Below is some information on the 401k plan about it.

First of all let’s look at what the plans actually are and what your options are. A traditional 401k is a plan that is managed by professional money managers. They take your investment and invest it into safe securities over the long term.

The idea here is for them to make a somewhat steady return on your money of many years until you eventually retire. This way you have some extra money to support yourself after you have retired.

The other option to this is a 401k that is self directed. Not all companies offer a self directed 401k option, but if yours does it can definatley be something worth looking into. With a self directed 401k you are allowed to decide how the money is going to be invested.

Unfortunately most of these plans limit you to mutual funds. In that way the only thing you would have control over is who you want to manage your account for you. So, while you do get to invest it your options may be limited.

If you want to get more investment options another idea is to open up an IRA and do a Rollover to an IRA. IRA’s typically give you a lot more options so you could always create an IRA and switch your money over to that account taking advantage of the new options.

So, which strategy is best, self directed 401ks or Traditional 401ks? Well, it kind of depends. If you would like to be in charge of your own account and possibly make a much higher return on it then managing it yourself could be a good idea. However if you want the security that comes with letting professionals manage your account or if you do not trust yourself to invest wisely, then a traditional 401k plan may be the better option.

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