June Sham
Appearances
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
We are a little bit spoiled. A Bright Scope and Investment Company Institute study found that large 401k plans offer 28 investment options on average in 2019. In their How America Saves 2024 report, Vanguard shared that their average plans offer 27.5 investment options in 2023. When it comes to choosing an account based on the investments available, consider what is available in your 401k plan.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
If it only offers a handful of funds and the fees are high, such as an expense ratio over 1%, it might be worthwhile to contribute enough just to get the employer match and then prioritize an IRA.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
Even though we've talked about a number of accounts today, you don't need to pick one over the others. Instead, remember that all three accounts serve different purposes and goals and all can be part of a solid financial plan.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
Thanks so much for having me again.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
Yeah, it might be surprising, but 401k plans can be set up by different types of financial institutions, such as a bank, mutual fund provider, or as in our listeners case, an insurance company. Whether a 401k plan is managed by an insurance or investment company, their role is the same.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
They're responsible for the written plan, which outlines the type of 401k plans offered, organizing a trust fund to hold the plan's assets, creating a record-keeping system, and providing plan information to participants.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
Yes, they do. Retirement plans do have to share plan information, which includes expenses and fees. The IRS calls these participant plan and investment fee disclosures. They're shared at the beginning of the plan and then at least once a year after that. You can also expect to receive quarterly statements that share information on how much was paid out from your account for certain fees.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
What can make it confusing is that retirement plans do have to update participants regularly, but it might not happen with every change.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
Yeah, it's unfortunate that our listener doesn't get an employer match for their 401k contribution, which is a really big perk for using a 401k to invest for retirement in the first place. But another big reason to invest for retirement in a 401k plan compared to a brokerage account is the tax advantages.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
If you have a traditional 401k plan, contributions are pre-tax, meaning you can lower your taxable income for the year by adding to your account, up to the IRS contribution limit. On top of that, any gains from investment earnings, dividends, and interest don't incur any taxes until you make withdrawals in retirement.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
If you want to defer the tax break until later and it's available to you, you can consider a Roth 401k plan. So June, it sounds like as you laid out, there are many benefits of actually contributing to a 401k.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
And our listener has pointed out a few. Limited control over fees and investment options. Additionally, because a 401k is meant to be invested for long-term growth, early withdrawals before retirement age may come out with taxes and penalties. If you really needed money, you could also explore a 401k loan depending on your plan provider's rules.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
In comparison, you get to do your own research and choose your own brokerage account provider. And if needed, you can access your money at any time in the present.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
We've named a few already, and that includes no early withdrawal restrictions, contribution limits, or employer constraints, and a lot more investment options. Another that some people might not think about is required minimum distributions, which are required for some IRAs and 401ks.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
With a brokerage account, you can leave that money invested, but with traditional 401ks, you generally must withdraw a minimum amount from your plan every year starting at age 73. There are some exceptions, and this rule does not apply to Roth plans.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
Yeah, those are two very important things to consider when comparing retirement investment accounts, specifically for between a 401k plan and an IRA. Also consider the contribution limits and employer match for a 401k if you get that.
NerdWallet's Smart Money Podcast
401(k) vs. Brokerage Account: Which Is Better for Retirement Savings? Plus, the National Debt Explained
If comparing Roth IRA accounts between providers, some other factors to think about could include account minimums, customer support, retirement planning tools, and maybe even how easy it is to use their desktop and mobile services. My team did a whole analysis on how to pick the best Roth IRA accounts in an article you can find on NerdWallet, and we'll link it to the description of this episode.