Can I Choose Individual Stocks in My 401(k)?

One of the most useful tools for saving for retirement is an employer-sponsored 401(k) plan. Employers allow workers to contribute to 401(k)s from each paycheck, and most employers match employee contributions up to a certain point. The funds in your 401(k) are invested in a combination of assets, including stock. However, you can only choose individual stocks in your 401(k) if your plan is set up in a certain way.

401(k) Basics

The biggest benefit of a 401(k) is the fact that an employer matches your contributions, allowing your retirement savings to grow more rapidly than if you were the only one putting money into it. However, allowing an employer to manage your retirement savings plan comes at a price. That price is usually a loss of control over the investments. Most 401(k) plans are managed by a third party to ensure that they provide adequate retirement income when an employee is ready to retire.

Diversifying Investments

Most 401(k) plans rely on diversification to balance risk and ensure retirement income that meets employee expectations. This is why 401(k) plan managers invest in bonds, individual stock and mutual funds, among other investment types. Employees may be allowed to select how they want their 401(k) funds invested, but often this choice is between long-term, aggressive investment strategies and more short-term, conservative options. Only in a handful of cases can employees choose individual stocks or investments for their 401(k)s.

Taking Control

In some cases, employers choose 401(k) plans for their employees that offer the option of choosing individual stocks. However, this may only apply to a set percentage of the funds in the plan. The plan may still require employees to diversify or invest in more than one stock, thus limiting how much they can put into a single company's stock. If your employer offers a 401(k) with this high degree of employee control, you will take on added responsibility for your retirement income if you choose to exercise it.

Alternatives for Retirement

Even if you don't have a 401(k) that allows you to invest in individual stocks of your choosing, you can still put money into a company as a means of saving for retirement. IRAs, or individual retirement accounts, are personal retirement plans that offer more control, including the choice of stocks. You can fund an IRA with pre-tax income, up to a set annual limit that depends on your age. You can also buy shares of stock that you earmark for retirement, eliminating the tax benefits of a retirement plan but also working around the limitations of IRAs and 401(k)s.

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