Q. I am 54 and I have both a traditional 401(k) and a Roth 401(k). Each account allows a transfer into a self-directed brokerage account (SDBA). It says I can move up to 50% of my vested balance to this account. I considered this because I wanted to buy options tax-free, but this isn’t allowed. So if using the SDBA for investing in exchange-traded funds and mutual funds smart because I can’t do options? My second goal is to have two Roth IRA accounts — the one with my employer and an outside one. What do you think?
— Investor
A. The self-directed brokerage account (SDBA) is an option few people decide to use.
The main benefit of using a SDBA is the flexibility of investments outside of the normal investment lineup in the 401(k), said Kenneth Van Leeuwen, a certified financial planner with Van Leeuwen & Company in Princeton.
He said this works well if you were looking to purchase individual securities instead of mutual funds or exchange-traded funds.
“The potential downside of using this type of account is that the fees may be more compared to a 401(k) plan, and the investments are not being managed professionally,” he said. “Typically, if you are buying mutual funds within a 401(k), the fees tend to be less than if purchased in a brokerage account.”
On the Roth accounts, Van Leeuwen said, you can contribute to the ROTH 401(k) as well as a ROTH IRA if you meet certain income requirements.
There is not a mandatory $7,000 total for Roth accounts in general, but that’s the limit for Roth IRAs — $6,000 per year for anyone under age 50 and $7,000 per year for those above age 50.
So you can save to a Roth IRA if you qualify while you still save in the Roth 401(k).
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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.