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Can I invest in mutual funds through my 401(k) or other employer-sponsored retirement plan?

Curious about mutual funds

Can I invest in mutual funds through my 401(k) or other employer-sponsored retirement plan?

Yes, you can invest in mutual funds through your 401(k) or other employersponsored retirement plan. Many 401(k) plans and similar retirement plans offer a variety of investment options, including mutual funds, to help employees save for their retirement.

Here's how it generally works:

1. Enroll in the Retirement Plan: If your employer offers a retirement plan, such as a 401(k), 403(b), or 457(b), you will need to enroll in the plan to start contributing.

2. Contribute to the Plan: Once enrolled, you can contribute a portion of your pretax salary (or aftertax salary, in the case of Roth 401(k)) to the retirement plan. There is usually a maximum annual contribution limit set by the government, which may vary based on the type of retirement plan.

3. Select Investment Options: After making contributions to the retirement plan, you will need to choose how to invest your money. Employers typically offer a selection of investment options, which may include various mutual funds with different asset classes and risk profiles.

4. Allocate Your Contributions: You can allocate your contributions among the available investment options based on your risk tolerance, time horizon, and financial goals. This allocation determines how your contributions are divided among the selected mutual funds.

5. Rebalance and Monitor: Over time, your investment allocation may drift from your original targets due to market fluctuations. It's essential to review and rebalance your portfolio periodically to maintain your desired asset allocation.

6. Tax Benefits: One of the significant advantages of investing in a 401(k) or similar retirement plan is the potential tax benefits. Traditional 401(k) contributions are made with pretax dollars, reducing your taxable income in the current year, while Roth 401(k) contributions are made with aftertax dollars and may provide taxfree withdrawals in retirement.

7. Employer Match (if applicable): Some employers offer a matching contribution, where they will match a portion of the employee's contributions to the retirement plan. This is essentially "free money" from your employer and can significantly boost your retirement savings.

It's important to review the investment options available in your employersponsored retirement plan and consider factors like expense ratios, historical performance, and risk before making investment decisions. If you are uncertain about which mutual funds to select or how to allocate your contributions, consider seeking guidance from a financial advisor who can help you create a suitable investment strategy based on your individual circumstances and retirement goals.

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