One of the advantages of the 401(k) accounts is that they help employee’s save for retirement with the benefit that the contributions made to these accounts are tax deferred. The funds of these accounts are generally invested in investment vehicles like stocks, mutual funds, bonds etc where the earnings from such investments are tax deferred as well. Employees can choose the investment vehicles they want to impart growth for their money according to what they want or plan for. Some, for greater gains may choose to go with high risk – high growth investments whereas, some may choose to let their money grow with just low risk-assured funds.
Some with the wish of accelerating the growth of the funds in their 401(k) account may wish to physically trade stocks from them. If such is the case, they should refer to their Summary Plan Description or their plan provider/administrator to confirm whether their account endows them with the privilege. Even if one’s account does provide them to trade stocks, the trading should be approached with extreme caution as it can be very risky. Also, one would be risking their retirement savings which may be their only source of income in retirement.
The very first consideration one should make before jumping on the trading platform is whether they can trade themselves. Trading the stock market is not easy and requires at least some amount of experience. Hence, self-assessment should be the first step followed by an assessment of one’s funds and how much of them they would like trade with. It is generally advised to start off with small amounts to be on the safer side.
As a general rule of thumb, it is advised that the older one is, the lesser they should invest in stocks in their 401(k) account. A common pointer that is considered is that one should subtract their age from 100 to arrive at the percentage which they should have invested in stocks. Given this, younger employees may choose to take high risk stocks as compared to older ones who would prefer mutual funds or bonds. Also, as a general investment advice, it is said that one should not have more than 10% invested in their company stock.
There is another choice which the employee has; although, it works only if the employee has a 401(k) account with a previous employer. The next step the employee must take is of setting up an IRA with some brokerage firm (or in some cases, a bank). If they already have one, they may choose not to open a new one and set up the existing one for trading. However, special attention must be paid to the terms and conditions when setting up the account and also the fees to be paid. Any entity asking for more than 1% of the IRA in fees must be avoided.
The next step they need to take is to make a direct rollover of the previous 401(k) account into the IRA. They can then start trading from this account.
It should be noted that trading stocks in the short term needs lots of monitoring and research and can tend to be exhausting if the employee already has a demanding job. However, if done properly they can yield greater gains. Even though, it is advised that trading should be done on a short term only.
