Disclaimer: I am not a financial advisor and this post does not constitute as financial advice. Please consult a financial professional before acting on any information.

If your employer uses Fidelity to manage your 401(k), now’s the time to see if you have the option to enroll in BrokerageLink.

What is BrokerageLink?

BrokerageLink allows you to open a free brokerage account within your 401(k). You’ll be able to invest parts of your 401(k) into investments of your choice. Depending on your employer’s terms, this could include virtually any stock or ETF on the market! You can also have future contributions automatically split between your primary 401(k) investment choices and BrokerageLink.

What are the benefits?

  1. More investment choices

    I don’t think I need to explain this one.

  2. Lower expense ratio ETFs

    Let’s look at a quick example. $100k invested in two identical funds. The expense ratio for Fund A and B is 0.04% and 0.03% respectively. If you choose Fund A over B you will end up paying an extra ~$2,000 in fees over 30 years; caused by a mere 0.01% expense ratio difference. Not much, but keep in mind this is for a difference of only 0.01% with no additional contributions and an average annual return rate of 7%.

    Compare the expense ratios between fund options your employer gives you and well-known ETFs you could buy via BrokerageLink like VTI, VOO, and VT. You may be better off buying ETFs of your choice.

  3. Deferred capital gains

    Active investor looking to buy value stocks can grow their account while deferring capital gains until retirement. Just remember any losses will also be deferred to retirement.

What are the limitations?

  1. Limited balance (maybe)

    Some employers limit what portion of your 401(k) balance can be moved to BrokerageLink (e.g. up to 50% of your 401(k) balance in BrokerageLink at any time).

  2. Harder to automate.

    You can automate funds going into BrokerageLink, but good luck trying to get ETF and stock trades to auto execute on those funds. You’ll have to login every time you get paid to buy more shares when the market is open. Note it may take longer (hours if not days) to fulfill some ETF orders depending on how much trading volume that ETF has.

  3. Your mileage can vary greatly.

    Every employer has their own set of rules on what you can and cannot do. Talk to HR before jumping in.