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Tax-deferred retirement accounts are a critical component of future planning for many people, and most people depend on steady growth in these plans to outpace inflation and grow in value over many years. You could be saving for retirement for more than 40 years, and you may accumulate a substantial amount in these accounts. With something so important to your future, be certain you are getting the most out of these plans by exercising any management options that are available to you.
If you have an employer-sponsored retirement plan like a 401k, you may have some management options depending on your specific plan. While some employer-sponsored plans do not offer different investment choices, you may be able to choose between preselected custom portfolio options, labeled only as conservative or aggressive options, or your plan may offer the option to invest in various publicly traded mutual funds.
More Options With Employer Plan
If your employer plan does not offer good options, try to get the plan to change. Other employees may not be happy with their choices either, so enlist their help. Contact your plan administrator, and let him know your concerns. He may add some additional choices. Some companies have committees that choose investment options, and others offer you the chance to self-direct your 401k investment, choosing your own investment options.
Individual Retirement Arrangement
An individual retirement arrangement gives more flexibility for managing your own account. You choose where to open the account and can select the trustee to manage the account that offers the investment options you choose. You can choose among banks, mutual fund companies and stockbrokers as places to establish an IRA account.
If you have any income from self-employment, including any freelance or consulting work, you can open a self-employed retirement plan and increase your contributions. A simplified employee pension, or SEP, is a type of IRA that allows you to contribute up to 20 percent of your self-employment income to your plan. You can also open a Keogh plan, another type of retirement account offering a defined benefit and profit sharing option. You can also open an individual 401k plan and contribute both as an employee and employer, potentially increasing your contributions for the year. You decide where to open these accounts and manage the options yourself.
A self-directed IRA, or 401k if your employer offers that option, offers the most flexibility in terms of self-management. A self-directed IRA trustee allows you to pick your own investments, including nontraditional IRA offerings such as rental real estate or small businesses. While this type of trustee for your IRA offers the most flexibility, it also is likely to be the most expensive option. The trustee must oversee all of these nontraditional investments, and that is likely to take more time and more resources than other options, such as a simple mutual fund investment.