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How to Buy an ETF in Your 401k
Most mid-career professionals don't realize they can buy individual ETFs within their 401(k) plan—but only if your employer offers a specific feature that unlocks thousands of investment options beyond your standard menu.
What Is a Self-Directed Brokerage Account? đź’ˇ
A self-directed brokerage account—often called BrokerageLink (Fidelity) or Personal Choice Retirement Account/PCRA (Schwab)—is essentially a sub-account within your regular 401(k) plan. Think of it as a brokerage window that gives you access to thousands of investment options beyond the 15-25 funds typically offered in your core 401(k) menu.
According to PlanSponsor's 2024 Defined Contribution Survey, approximately 30% of all 401(k) plans now offer a self-directed brokerage window. This rate climbs to over 55% for larger plans with more than $200 million in assets, meaning if you work for a mid-to-large employer, there's a decent chance your plan includes this option.
But here's the surprising part: Vanguard's "How America Saves" 2025 report shows that only about 2% of eligible participants actually use self-directed brokerage accounts when they're available. That's a massive gap between availability and utilization—and it represents a significant missed opportunity for investors seeking greater control and diversification.
How Self-Directed Brokerage Accounts Work đź“Š
Opening and using a self-directed brokerage account within your 401(k) involves three straightforward steps:
Step 1: Open the Account
Log into your 401(k) plan administrator's website (Fidelity, Schwab, Vanguard, etc.) and look for the self-directed brokerage account option. The exact name varies by provider:
- Fidelity: BrokerageLink
- Schwab: Personal Choice Retirement Account (PCRA)
- Other providers: Self-Directed Brokerage Account (SDBA)
The enrollment process typically takes 10-15 minutes and involves acknowledging additional disclosures about the expanded investment options and associated risks.
Step 2: Transfer Funds
Once your SDBA is active, you'll transfer money from your existing 401(k) investment options into the new brokerage account. Most plans require a minimum initial transfer—typically $500 or more—and many limit how much you can move overall.
According to industry data, most plans cap transfers at 50% of your account balance, though some allow up to 95%. Check your specific plan's rules, as these restrictions are set by your employer, not the brokerage provider.
Step 3: Invest in ETFs and Beyond
With funds in your SDBA, you can now invest in thousands of ETFs, mutual funds, individual stocks, and bonds that aren't available in your core 401(k) menu. Charles Schwab's SDBA Indicators Report for Q2 2025 found that participants typically hold about 12 positions in these accounts, with ETFs making up 27.9% of total holdings—the second most popular investment type after individual equities.
Who Uses Self-Directed Brokerage Accounts? 🎯
The average SDBA user looks quite different from the typical 401(k) participant:
Account Balance: According to Schwab, the average SDBA balance reached $362,302 in Q2 2025—significantly higher than the typical 401(k) balance. This represents an 8.1% increase year-over-year, demonstrating both market growth and the tendency for higher-net-worth participants to use these accounts.
Demographics: SDBA participants tend to be older, have higher incomes, and maintain larger overall retirement account balances compared to the general 401(k) population.
Investment Approach: Most SDBA users take a measured approach to investing. Trading volumes averaged 15.9 trades per account in Q1 2025, indicating moderate but not excessive activity. The majority focus on diversification through ETFs and sector-specific investments rather than frequent speculation.
Top Investment Choices:
- Equities: 34.8% of SDBA holdings
- ETFs: 27.9% of holdings (with U.S. equity ETFs comprising about 50% of ETF allocations)
- Technology sector: 37.9% of equity investments
- Fixed income ETFs: 13% of ETF holdings
- International equity ETFs: 11.9% of ETF holdings
Key Restrictions and Limitations ⚠️
Before you rush to open a self-directed brokerage account, understand these common limitations:
Transfer Limits
Most plans restrict how much of your 401(k) balance you can move into the SDBA. The typical limit is 50% of your total account value, though some plans are more restrictive (25%) and others more generous (up to 95%). This prevents participants from completely abandoning the core investment menu that the plan fiduciary has carefully selected.
Investment Restrictions
While SDBAs offer expanded choices, not everything is available. Your plan may prohibit:
- Cryptocurrency and crypto-related investments
- Leveraged or inverse ETFs
- Options trading or margin accounts
- Certain alternative investments (REITs, commodities, etc.)
- Penny stocks or highly speculative securities
These restrictions exist to protect both participants and the plan sponsor from undue risk and regulatory concerns.
Contribution Flow
Your ongoing payroll contributions typically cannot go directly into the SDBA. Instead, contributions flow into your core 401(k) investment selections, and you must periodically transfer funds into the brokerage account if you want to add to those positions. This adds an extra layer of active management to your investment process.
Minimum Transfers
Most plans require a minimum transfer amount—often $500 per exchange—which means you can't make tiny, frequent moves between your core 401(k) and the SDBA without potentially incurring multiple transaction fees.
Understanding the Fees đź’°
Self-directed brokerage accounts come with additional costs that don't apply to your core 401(k) investments. Here's what to expect:
Fidelity BrokerageLink Fees
- Annual account fee: $0-$99 depending on your employer's plan (some employers cover this cost)
- Mutual fund transaction fees: As of June 2024, certain mutual fund families (like Vanguard and Dodge & Cox) charge $100 per purchase transaction
- ETF/stock trades: Many are commission-free, but check your specific plan's fee schedule
- Short-term trading fees: Funds held less than 60 days may incur redemption fees
Schwab PCRA Fees
- Account maintenance fee: Schwab doesn't charge one, but your plan recordkeeper might
- Trading commissions: Standard Schwab brokerage rates apply (many ETFs and stocks trade commission-free)
- Transaction fees: Apply to certain mutual fund purchases
Why the Extra Costs?
These fees exist because self-directed brokerage accounts require different infrastructure and oversight than the limited menu of your core 401(k). You're essentially getting retail brokerage capabilities within a qualified retirement plan, which involves additional administrative complexity and regulatory requirements.
Important consideration: If you're primarily investing in low-cost index ETFs, calculate whether the SDBA annual fees and transaction costs offset the expense ratio savings compared to your core 401(k) options. For smaller balances, the math may not work in your favor.
Compliance and Fiduciary Considerations đź“‹
Under ERISA (the Employee Retirement Income Security Act), your employer has a fiduciary duty to prudently select and monitor the SDBA platform, even though they're not responsible for monitoring your individual investment choices within the account.
This means:
Your employer must:
- Ensure the SDBA provider charges reasonable fees
- Provide clear disclosure of all costs and restrictions
- Regularly evaluate whether offering the SDBA feature remains appropriate for plan participants
You are responsible for:
- All investment decisions within your SDBA
- Understanding the risks of your chosen investments
- Monitoring your portfolio performance and rebalancing as needed
- Ensuring your investment strategy aligns with your overall retirement goals
The Department of Labor continues to emphasize that while SDBAs provide valuable flexibility, plan sponsors and participants must both understand the increased complexity and responsibility that comes with expanded investment options.
Should You Use a Self-Directed Brokerage Account? âś…
A self-directed brokerage account makes sense if you:
1. Want specific investments unavailable in your core 401(k): Perhaps you want exposure to international small-cap stocks, sector-specific ETFs, or a particular investment strategy not represented in your standard menu.
2. Have a larger account balance: With the average SDBA balance over $360,000, the additional fees are more easily absorbed by higher balances. If you have less than $50,000 in your 401(k), the annual fees and transaction costs may outweigh the benefits.
3. Are comfortable managing investments: You should have a solid understanding of portfolio construction, asset allocation, and investment risk. This isn't the place to experiment or speculate with your retirement funds.
4. Have a clear investment thesis: Don't open an SDBA just because it's available. Have a specific reason—like accessing lower-cost index funds, implementing tax-loss harvesting strategies, or building a more diversified international allocation.
5. Can commit to active management: Since contributions don't flow directly into the SDBA, you'll need to regularly review and transfer funds if you want to maintain your target allocation.
A Self-Directed Brokerage Account May Not Be Right If: ❌
- Your core 401(k) menu already offers low-cost, diversified index funds that meet your needs
- You prefer a "set it and forget it" investment approach
- You're uncomfortable making independent investment decisions
- Your account balance is relatively small (under $50,000)
- You tend toward frequent trading or speculation
- Your employer's plan charges excessive SDBA fees
Key Takeaways 🔑
1. Availability doesn't equal necessity: Just because your 401(k) offers a self-directed brokerage account doesn't mean you should use it. Evaluate whether it truly adds value to your retirement strategy.
2. ETFs are popular for good reason: With nearly 28% of SDBA holdings in ETFs, these investment vehicles offer low costs, diversification, and trading flexibility—making them ideal for self-directed accounts.
3. Understand all restrictions and costs: Before opening an SDBA, thoroughly review your plan's specific limitations on transfers, investment types, and fee schedules.
4. Stay disciplined: The expanded investment menu is both an opportunity and a risk. Maintain a long-term perspective and avoid the temptation to overtrade or chase performance.
5. Consider professional guidance: Given the additional complexity and responsibility, many investors benefit from working with a financial advisor who can help determine if an SDBA fits their overall financial plan and assist with investment selection and ongoing management.
Take the Next Step
Navigating investment decisions like whether to use a self-directed brokerage account requires careful consideration of your unique financial situation, goals, and risk tolerance. The expanded options can be powerful tools for building wealth—but only when used strategically and with proper guidance.
If you're a mid-career professional with expanding income and competing priorities—perhaps facing college funding decisions while trying to maximize your retirement savings—these decisions become even more complex and consequential.
Ready to explore whether a self-directed brokerage account makes sense for your situation? Schedule a complimentary consultation to discuss your 401(k) strategy and overall financial plan. Let's ensure you're making the most of your retirement savings opportunities while avoiding common pitfalls.
About the Author
Tim Witham, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional with over 14 years of experience helping mid-career professionals and families navigate complex financial decisions. As the founder of Balanced Life Planning, he specializes in working with families facing expanding incomes and competing priorities, particularly those approaching college funding decisions.
Sources & References
1. [PlanSponsor 2024 Defined Contribution Survey](https://www.sequoia.com/2025/10/expanding-401k-investment-options-through-self-directed-brokerage/) (October 2024)
2. [Vanguard "How America Saves" Report 2025](https://corporate.vanguard.com/content/dam/corp/research/pdf/how_america_saves_report_2025.pdf)
3. [Charles Schwab SDBA Indicators Report Q2 2025](https://www.plansponsor.com/self-directed-investing-in-401k-account-balances-rose-in-q2-schwab/) (August 2025)
4. [Fidelity BrokerageLink Fee Schedule](https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/expanded_investment_options.pdf)
5. [Schwab Personal Choice Retirement Account Information](https://www.schwab.com/pcra)
DISCLOSURE: The information contained herein has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy. Balanced Life Planning is a registered investment adviser. Registration does not imply a certain level of skill or training. Information presented is for educational purposes only, is subject to change from time to time, and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization's initial and ongoing certification requirements to use the certification marks.