Can You Put Stocks in a 401(k)? What Employers Should Know

It’s a common question from employees—and a common concern for employers: “Can we let people buy individual stocks in our 401(k)?” With investing apps everywhere, participants may expect the same flexibility inside their workplace plan.

The reality is that stocks in a 401(k) are possible in some plans, but typically only through a feature called a self-directed brokerage account (SDBA). Before you add one, it’s worth understanding how it works, what it costs, and what your fiduciary responsibilities look like.

Can participants buy individual stocks in a 401(k)?

Most 401(k) plans are designed around a core lineup of diversified funds (like target-date funds, index funds, and bond funds). That structure is intentional: it supports long-term retirement outcomes and helps employers manage risk and oversight.

That said, a plan can allow participants to buy individual stocks if the plan document and provider support it—most commonly via an SDBA window. An SDBA is an account inside the 401(k) that gives participants access to a broader investment menu than the core lineup, sometimes including:

• Individual stocks and ETFs

• Mutual funds not available in the core lineup

• Other securities permitted by the brokerage and plan rules

Whether you should add this feature is a separate question—and one that should be evaluated through the lens of plan goals and fiduciary risk.

How stocks in a 401(k) can be offered: the SDBA approach

When employers ask how to “add stocks,” what they usually mean is adding an SDBA option. This is typically implemented as an add-on feature through your recordkeeper (the company that tracks participant accounts and processes transactions) and an affiliated or third-party brokerage platform.

In practice, the setup often looks like this:

1. Plan sponsor enables SDBA through the provider and plan document.

2. Participants opt in (not everyone uses it).

3. Participant transfers money from the core 401(k) account into the brokerage window.

4. Participant places trades (e.g., buys stocks) within the SDBA, subject to plan rules.

Most employers add guardrails, such as limiting the percentage of a participant’s balance that can be moved into the SDBA, or restricting certain higher-risk investments.

If you’re evaluating whether the feature fits your plan, it can help to consult a qualified advisor. See our guide on how to hire a retirement plan advisor and browse local options for 401(k) financial advisors.

Why most plans don’t really need individual stocks

401(k) plans are built for long-term retirement saving, not short-term trading. For most participants, the best chance of reaching retirement goals comes from:

• Diversification (spreading risk across many companies and sectors)

• Consistent saving over time

• Low costs (fees matter a lot over decades)

• Simple choices that reduce decision fatigue

Target-date funds and broadly diversified index funds typically accomplish these goals without requiring participants to pick individual winners and losers. Even when an SDBA is offered, utilization is often limited to a small percentage of participants—while the fiduciary and administrative work affects the whole plan.

In other words: offering stocks may feel like a benefit, but it doesn’t always improve outcomes—and it can increase complexity.

Fiduciary responsibility: what employers are still on the hook for

Adding an SDBA does not eliminate fiduciary responsibility. Under ERISA (the federal law that governs most private employer retirement plans), plan fiduciaries must act prudently and in the best interest of participants.

Even if participants choose their own investments inside the brokerage window, employers generally still have fiduciary duties such as:

• Selecting and monitoring the SDBA provider and platform

• Understanding and evaluating fees charged to participants

• Ensuring disclosures and education are provided appropriately

• Maintaining a prudent core lineup (the SDBA is typically not a substitute for it)

Regulators have emphasized that brokerage windows require oversight. For a starting point on fiduciary expectations, see the U.S. Department of Labor’s retirement plan fiduciary guidance at DOL/EBSA: Meeting Your Fiduciary Responsibilities. You can also review ERISA’s statutory framework via Congress.gov (ERISA).

Depending on your plan’s structure and governance, it may also be helpful to consult ERISA attorneys when adding or revising brokerage window features.

How SDBA pricing typically works (and why it matters)

SDBA fees can be easy to underestimate. The core fund lineup often features institutional pricing and transparent expense ratios. Brokerage windows may add multiple layers of cost, such as:

• Annual or monthly account fee for the brokerage window

• Per-trade commissions (though some platforms advertise “commission-free” trading, other costs may still apply)

• Ticket charges for certain mutual funds

• Expense ratios on funds/ETFs purchased in the SDBA

• Revenue sharing or recordkeeping offsets (varies by provider and share class)

From a fiduciary perspective, the key is not that every participant pays the lowest possible fee—it’s that fees are reasonable for the services provided and are understood, disclosed, and monitored. If the SDBA becomes a “premium feature,” consider whether only users pay for it (a common approach) versus spreading costs across all participants.

Operational considerations: administration, communication, and compliance

Adding an SDBA can also affect plan operations. Before implementing, employers should clarify:

• Eligibility rules (who can use the SDBA and when)

• Transfer limits (e.g., maximum percentage into the brokerage window)

• Restricted investments (if any)

• Participant education and risk disclosures

• How the SDBA appears on statements and the participant website

SDBAs can also intersect with your plan’s annual reporting. If you want a refresher on reporting obligations, see what a Form 5500 is and review the Form 5500 resources on DOL/EBSA Form 5500.

And if your plan reaches the large-plan threshold, you may need an annual audit. Start with what a 401(k) audit is and when you need one and what is needed for a 401(k) audit. If you’re comparing firms, you can browse 401(k) auditors or view all auditors for other plan types.

How plan advisors help employers evaluate (and manage) SDBAs

A knowledgeable retirement plan advisor can help you decide whether offering stocks via an SDBA aligns with your workforce and plan strategy—and if you do implement it, help you manage it prudently. Common advisor support includes:

• Benchmarking the SDBA fees and comparing providers

• Drafting an investment policy approach that addresses brokerage windows

• Participant communication that sets expectations and explains risks

• Ongoing monitoring of provider service levels, errors, and participant experience

If you’re reviewing your overall risk management, it’s also a good time to confirm required protections like an ERISA bond. See what an ERISA bond is and how to buy one and compare options through ERISA bond providers.

Conclusion: stocks in a 401(k) are possible, but simplicity usually wins

Yes, you can allow stocks in a 401(k)—most often through an SDBA. But for many employers, the added fees, oversight responsibilities, and complexity outweigh the benefit, especially when a strong, low-cost core lineup already supports long-term retirement outcomes.

If you’re considering an SDBA, treat it like any other plan feature: evaluate participant demand, document the rationale, understand the pricing, and set a monitoring process. For help comparing approaches or providers, talk with experienced 401(k) financial advisors and, when needed, consult ERISA attorneys to align plan operations with fiduciary best practices.