Investing your retirement dollars effectively is very important. You should take full advantage of your company’s 401k plan, especially if your employer offers matching contributions. When it comes to choosing an investment vehicle for your 401k money, however, your choices may be limited.
The employer has full discretion to decide what investment vehicles to offer for a 401k plan. Most companies stick with one mutual fund family, but within that you will have a choice of several different funds, so if, for example, indexing is your preferred style of investment, you should be able to do this. You will also be able to decide what percentage of your portfolio should be invested in stocks versus bonds. Other employers may offer several different fund families for you to choose from.
Expanding the Choice
If you don’t like any of the choices offered in your 401k plan, speak to your HR department and ask if there's any latitude to consider other financial services providers. It usually will take some time for a company to switch providers, or include new choices, but if you make a good argument, some employers will consider it.
Other Retirement Vehicles
If you are still dissatisfied with the choices in your 401k, you should invest some of your retirement savings outside of it. Continue to put enough money into the 401k to qualify for the maximum employer match, but then open an IRA for further savings. You have complete discretion over how to invest your IRA money, and the Internal Revenue Service has very broad rules about what vehicles are allowed.
When you change jobs, you will have to make a decision about what to do with your 401k funds. If you decide you want more freedom, roll them into an IRA. Alternately, you can roll the funds into your new employer's 401k if you prefer. Be careful with how you execute the rollover and don’t cash out your money – if you do, you’ll incur taxes and penalties, and you will lose the benefit of tax-deferred earnings on that money.
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