Things You Didn’t Know You Could Invest Within Your 401k

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Last Updated on: 15th May 2019, 04:19 pm

Most of us want to retire comfortably, having financial peace of mind. Investing in a 401k plan is essential for the majority of Americans who want to attain a care-free retirement. There are many options for leveraging the power of a 401k plan. In this article, industry experts discuss things you didn’t know that you could invest within your 401k.

Buy Interest in a Business

“One not-so-common investment within a 401(k) is buying interest in a business. You are, however, not able to manage the business in any way and cannot use your IRA in to benefit yourself before retirement. You are essentially betting on the capital gains of the business if it rises in value. Making it a risky investment. With a self-directed 401(k), you can invest in businesses, debt, cryptocurrency, real-estate, and more. But each has tight restrictions and guidelines that must be followed, not to mention the increased risks associated with them.”

Jacob Dayan, CEO, Finance Pal


Race Horses

“My financial advisor recently opened my eyes as to what sort of investments are allowed under my self-directed 401(k) plan. I'm a big horse-racing fan and he told me that I could actually invest in horses if I wanted to under my current plan. Obviously, he recommended I do not pursue this path but nevertheless I found this extremely interesting. I had no idea horses could be considered an investment under 401(k) rules.”

Matthew Ross, Co-owner and COO, The Slumber Yard


Day Trade Penny Stocks

“This is something that the 401(k) teachers” don’t tell you. With most 401(k) and IRA plans being designed for investing and “saving until retirement,” not many people know that you can take the nest-egg in your 401(k) and use it to day trade things like penny stocks. I say penny stocks or micro-cap stocks because they are traditionally associated with quick, highly volatile and potentially highly profitable moves in the market. Now, day trading is an active investment strategy that involves buying and selling a stock in as short a period as one day. Needless to say, the benefit to the trader is being able to take advantage of quick spikes in the price for certain stocks. Because penny stocks are volatile and higher risk, the assumption is that you couldn’t use a retirement account to day trade but that is simply inaccurate. Why would you want to day trade with a 401(k)? Your tax advantages are still in play and this is a big advantage if you like making money on your money. When you sell a stock for a gain in a brokerage, you owe tax on that gain, immediately. With something like a 401(k), you won’t owe taxes on the gain as long as the money stays in the 401(k) account. What this means is that you can earn a higher after-tax return in the 401(k). Keep in mind that even though this is the case, you will still need to avoid taking a withdrawal on that gain until retirement age or you’ll have to pay a penalty. Either way, this is a great alternative to use your 401(k) for.”

Joe Sirianni, Director of Research,


Self-Directed Brokerage Account

“Most people do not know that if they use the Self-Directed Brokerage Account (SDBA) within their 401k, they can invest in any stock, bond, mutual fund, ETF, and really any investment option there is. Along those lines, there are some custodians that allow individuals to invest in alternative investments (real estate and commodities), and options. While not widely used, the SDBA option is great for higher earners who are looking for more options in their 401k then the generic mutual funds that are offered.”

Kyle Leonard, Wealth Advisor, Fund Direct Advisors


Rollover for Business Startup (ROBS)

“When most people think of 401(k) investing they think of traditional assets like stocks, bonds, or mutual funds. Some investors may think about other assets such as Exchange-Traded Funds (ETFs) or Target-Date Funds.
However, most investors don't think about a lot of other niche assets – and these are areas where a 401(k) can be a real value-add. For example, self-directed 401(k)s can be invested in alternative assets like real estate or privately-held companies. Going even a step further, investors can even use a Rollover for Business Startup (or ROBS) to fund a new or growing small business using their 401(k) assets. That said, anyone who wants to do this should definitely consider working with ROBS provider to get set up.

To summarize: 401(k)s are great tools for saving and investing, but most investors only think about 401(k)s narrowly and fail to consider a lot of the broader applications. Used appropriately, 401(k)s can be used to invest in a number of assets that small business owners may not know are available. Even in these special cases, 401(k)s offer the same preferential tax treatment that investors have come to expect with more traditional investments.”

Dock David Treece, Senior Financial Analyst,


Investment Properties

“You can use your 401k to purchase an investment property. Banks will want your loan to be non-recourse. This means that if you foreclose on the property, the banks won't come after you financially, but will just take the property back. Your 401k provider will usually cap the amount that you can borrow at a time, which is usually a percentage of your balance. You can only take one loan out per year to buy a rental property. The loan from the 401k provider is set up to pull automatically from your paychecks and is set to be paid back within two years. When you take out a 401k loan, you pay interest to your account, not the 401k provider. This means that you will increase your balance with interest from your loan.”

Shawn Breyer, Owner, Breyer Home Buyers 

There are numerous things to invest within a 401k account. In addition, there are many ways to manage the investments you make, to ensure a financially stable retirement. Use some of these expert tips to get the most out of your retirement plan.

Sarah Bauder
Sarah Bauder

Sarah Bauder has a decade of experience at numerous publications, writing about finance, politics, economy and more.

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