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Kevin Mercadante

E*TRADE set the bar as one of the first online discount brokers. But is it the broker you should be using? We help you answer that question in our E*TRADE review.

ETrade Review

It’s curious that the editorial team here at Consumerism Commentary has never reviewed E*TRADE before today. I say that because we have written about how to close an E*TRADE account. E*TRADE is also one of the largest and most innovative investment brokerage firms available, making this review long overdue.


Founded in 1982, it was one of the first companies to offer online trading. It’s one of the very best investing platforms for active traders, but it also offers managed investment options for investors who don’t want to manage their own portfolios.

E*TRADE has more than 3.5 million individual brokerage accounts, and more than $49 billion under management. In August 2017, E*TRADE acquired OptionsHouse, which is one of the top options investment platforms available. This makes the E*TRADE platform even more beneficial for active traders.

E*TRADE Review Summary

After reviewing dozens of investment platforms over the years, E*TRADE comes up as one of the better ones. What I like about E*TRADE is that many brokerage firms specialize in self-directed investing, others in managed portfolios and robo-advisors. E*TRADE offers both.

And the My Virtual Advisor tool can provide you with a portfolio allocation for your self-directed investing, using the same methodology as robo-advisors.

Where I find that E*TRADE falls a little short is that it has a definite orientation toward the high-volume trader. For example, E*TRADE Pro is one of the most intuitive trading software programs around, and would be particularly beneficial for new and small investors. But it’s only available for active traders.

The same is true of their reduced pricing, at $4.95 per trade. It’s also available only to very active traders. By contrast, Ally Invest also offers discounted commissions for high-frequency traders, but $4.95 per trade is standard for all investors.

Compare: See how E*TRADE stacks up to other online brokers

E*TRADE Features and Benefits

Available Accounts. E*TRADE offers individual and joint taxable brokerage accounts, trusts, estates, conservatorships, custodial accounts and Coverdell education savings accounts. They also offer a futures trading account, as well as a Forex trading account. Accounts can also be opened under business corporate LLC accounts.

Retirement accounts include traditional, Roth and rollover IRAs, beneficiary IRAs, IRAs for minors, and SEP and SIMPLE IRAs. They also offer small business retirement accounts and 401(k) rollover accounts

Investments Offered

E*TRADE is available to invest in stocks, bonds, mutual funds, exchange traded funds (ETFs), target date funds, options and futures, and fixed income securities. The firm offers more than 9,000 mutual funds, including 4,400 no-load funds with no transaction fees.

Minimum Initial Investment

You need a minimum initial deposit of $500 to open up a trading account. However, there are no minimums required for either retirement accounts or custodial accounts.

Calculators and Tools

E*TRADE has one of the most extensive trading platforms in the industry. Some of what they offer includes:

  • E*TRADE 360–This is the firm’s do everything platform for traders and investors. It offers streaming real-time quotes, customizable planning tools, and access to free independent research. That includes research from TipRanks, Credit Suisse, Thompson Reuters, and more.
  • E*TRADE Pro–This is E*TRADE’s main platform for active traders. It includes enhanced speed, insight and performance, including its Enhanced Options Analyzer to evaluate positions and strategies. Use a point-and-click order entry system, which enables you to trade more quickly and easily. You can use it to trade stocks and ETF’s, in addition to options.
  • Stock and Fund Screeners–Use this tool to cull thousands of funds and stocks to find the investments that you’re looking for. There are individual screeners for stocks, mutual funds, ETF’s bonds, and bond funds.
  • My Virtual Advisor–This is a tool that will recommend an asset allocation for you. It will evaluate your risk tolerance, financial goals and investment time horizon, and then make recommendations in a matter of minutes.

E*TRADE also offers the E*TRADE Community, which is a social media outlet where you can swap investment strategies, and discuss specific investments. It includes discussion boards for personal exchanges, and even gives you the ability to monitor community sentiment.

OptionsHouse Platform Access

This past summer E*TRADE and OptionsHouse began enabling investors to access their OptionsHouse trading platform from their E*TRADE accounts. This is a significant upgrade, since OptionsHouse offers one of the most advanced options trading platforms in the industry. The OptionsHouse platform provides Integrated Trading, Advanced Charting, Trading Ladders and Options Chains.

Mobile App

The E*TRADE mobile app provides the same information and tools that are available on the web app. That includes accessing the personalized retirement center. The app is available on iPhone, Android, tablets and Apple Watch, and can be downloaded at Google App and the App Store.

Local Branches

The company has 30 branch offices available in and around major cities.

Customer Service

Available 24 hours a day, seven days per week, by phone, email and online live chat. E*TRADE has investment advisors available at all times to help you with your investment decisions.

Account Protection

E*TRADE provides SIPC insurance on all accounts, with coverage up to $500,000, including up to $250,000 in cash. There is additional coverage through a London insurer for up to $150 million. Both types of coverage protect against broker failure, and not against losses due to market factors.

E*TRADE Managed Accounts and E*TRADE Adaptive Portfolios

If you’re not comfortable with self-directed investing, E*TRADE offers several options to have your account managed for you.

First is the Unified Managed Account. This is an actively managed portfolio, that invests in stocks, mutual funds and ETF’s. It’s for larger investors, requiring a minimum investment of $150,000. The annual fee for the service is not more than 1.25% of the value of your portfolio.

E*TRADE also offers E*TRADE Capital Management, to actively manage your portfolio. This is similar to investment management services provided by other traditional investment managers. For that reason, and because your account will be actively managed, the fees for the service range between 0.65% and 0.90%, depending on size of your portfolio. The minimum investment for the service is $25,000.

Finally there’s E*TRADE Adaptive Portfolios. This is E*TRADE’s robo-advisor service. It provides a fully automated investment account for the person who wants hands-off investment management. The account is managed through E*TRADE Capital Management, who both creates and manages your portfolio, including periodic rebalancing.

Adaptive Portfolios actually involves two distinct portfolios. The first is comprised entirely of ETF’s. This makes it a completely passive portfolio, since the funds represent markets and market segments. The second is a hybrid portfolio, that includes both ETFs and mutual funds. The mutual funds add an actively managed component to the portfolio, in an attempt to provide higher returns than index funds alone.

E*TRADE Adaptive Portfolios requires a minimum initial investment of $5,000, and an annual management fee of 0.30%. It’s available for taxable individual and joint brokerage accounts, all types of IRAs, custodial accounts, and even traditional and Roth 401(k)’s.


E*TRADE’s bank was created specifically for its investment customers. It offers free checking with no minimum balance requirement, although there is an initial deposit requirement of $100.

The bank also offers an interest-bearing checking account, but requires a minimum monthly balance average of at least $5,000, otherwise there is a $15 per month service charge.

With either account, you also get a free Visa debit card, as well as unlimited checking. Your account can be accessed online or by mobile app. Transfers between accounts, including your brokerage account, are free. In addition, E*TRADE Bank offers unlimited ATM fee reimbursements.

The bank also offers mortgages. In addition, all accounts are protected by FDIC insurance, for up to $250,000 per depositor.

E*TRADE Pricing

E*TRADE offers the following pricing:

  • Stocks, options and ETF’s–$6.95 per trade; $4.95 per trade with 30 or more trades per quarter. E*TRADE also offers a number of commission-free ETF’s
  • Options–$0.75 per contract; $0.50 per contract with 30 or more trades per quarter
  • Futures–$1.50 per contract
  • Bonds–$1 per bond, subject to a $10 minimum and a $250 maximum
  • US Treasury securities–no fee
  • Mutual funds–$19.99 per trade, but more than 4,400 no-load, no transaction fee funds
  • Broker -assisted trades–$25 per trade

There are no annual or monthly account fees for regular brokerage accounts.

E*TRADE Current promotions

E*TRADE is currently offering a cash credit starting at $200, and going as high as $2,500. The promotion works on a sliding scale, so the largest credits will go to the largest deposits or transfers. The scale looks like this:

You can get up to 500 free trade commissions for each stock or option trade completed within the first 60 days of the deposited funds being made available for investment in your new account. You will pay the trading fees as normally required, but the account will be credited within one week. Also, the transferred or deposited funds must come from a third-party source (bank, brokerage etc.), and not from another E*TRADE account.

SPECIAL OFFER–E*TRADE is currently offering a $600 bonus if you open up a new trading account with at least $10,000. This is specifically for non-retirement accounts, and the account must be opened no later than December 31, 2017.

How to Open an Account with E*TRADE

The entire sign-up process with E*TRADE takes place online. The application asks for general information, such as your name, address, occupation and income. You must have a valid Social Security number. You will also be requested to provide financial information, including liquid assets available, your net worth, and how much you expect to contribute to your account.

Once all of the general information has been entered, you will be asked to select the type of account that you want to open. That will also bring up a series of investment-related questions. E*TRADE tries to determine your level of experience, particularly in regard to more sophisticated trading, such as options and futures.

You will be asked specific questions, such as what types of investments you have previously held, and how much experience you have in managing them.

Once you have completed the application, you will create an account ID, and fund your account.


  • Excellent fee structure for active traders–$4.95 per trade is at the lower end of the industry fee structure.
  • 24/7 customer service, plus 30 local branches. Most investment brokerage firms only offer regular business hours, or extended trading hours. And few have any brick-and-mortar branches at all.
  • Top-of-the-line investment platform, that offers the kinds of tools needed by both novices and experienced investors.
  • 4,400 no-load, no transaction fee mutual funds.
  • The ability to maintain both a self-directed account for trading purposes, as well as managed options for those who lack the ability or desire to manage their own accounts.
  • The sign-up bonus ranging from $200 to $2,500–plus up to 500 free trades–is one of the most generous promotions in the industry.


  • The management fee of 0.30% on E*TRADE Adaptive Portfolios is at the middle range for robo-advisors, but higher than the 0.25% charged by popular robo-advisors like Betterment and Wealthfront.
  • Trading fees are only at the middle of the investment brokerage range if you are not an active trader.

Should You Sign Up With E*TRADE?

Due to the reduced trading commissions, E*TRADE will work best for very active traders (30 or more trades per quarter). The availability of investment options and platform tools is one of the very best in the industry. The E*TRADE Community also gives investors an opportunity to interact directly with other investors. This is a major benefit for both new investors and highly experienced ones.

But one of the biggest advantages with E*TRADE is the fact that it offers both a robust self-directed investment platform, as well as managed investment programs. This gives the user the ability to allocate his or her portfolio between self-directed and managed portions. An investor can decide to have some of their portfolio professionally managed, while keeping a portion for do-it-yourself investing.

Whatever type or level of investor you are, E*TRADE is an excellent choice. If you’re a new investor, you can start out using a managed option. But as your experience and your portfolio grow, you can seamlessly transition over to self-directed investing.

If you’d like more information, or if you’d like to sign up with the service, visit the E*TRADE website.

How to Manage Your E*TRADE Investments

Track and Analyze your Investments for Free: The easiest way to track and analyze all your investments, regardless of where they are located, is with Personal Capital’s free financial dashboard. By far the best financial tool we’ve ever used, Personal Capital enables you to connect all of your 401(k), 403(b), IRAs, and other investment accounts in one place. Once connected, you can see the performance of all of your investments and evaluate your asset allocation.

retirement fee analyzer

You can also see the fees you are paying through Personal Capital’s Retirement Fee Analyzer. I was stunned to learn that the fees in just my 401(k) could cost me over $200,000, requiring me to put off retirement for three years! They also offer a free Retirement Planner. This robust tool will help you plan for retirement and show you if you are on track to retire on your terms.

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Try Personal Capital
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Using rent payments to improve your credit is now easier than ever. We cover the websites that can help you report your rent to credit bureaus.

Rent Payments to Improve Your Credit

If you’re among the 36.6% of US households that rent, you’re probably missing out on the single biggest credit reference: Your rent payment!

Traditionally, the only way that your rent payments affect your credit score is if unpaid rent goes into collection. Your many years of making rent payments on time aren’t even recognized. Fortunately, that situation is changing. You may be able to help your own cause by learning how to report rent payments to credit bureaus.

Here are several services that can help you do just that.

Experian RentBureau

Experian has been moving forward in reporting rent histories through its Experian RentBureau. The service started in December, 2010, when Experian became the first credit reporting agency to include on-time rent payment data on its credit reports.

RentBureau will show your rental arrangement as a trade line, and includes your payments for the past 25 months. The data in the trade line will also show the date you started renting and your monthly payment amount.

There’s some really good news here, too. Experian will only include positive rental history. The reason is that negative rental information will usually show up as a collection account, which is already reported by the collection agencies.

Of course, there is a bit of a catch in the way this works. Your landlord won’t likely automatically report your rental history. That may be true even if you live in a very large apartment complex.

If you rent and you want your rent history included in your credit report, you’ll have to ask your landlord or property manager if they report to Experian RentBureau. If they do, you’re all set. But if they don’t, you’ll have to encourage them to do so. They may not want to. But there’s a workaround on how to report rent payments to credit bureaus.

How to Report Rent Payments to Credit Bureaus

To do that, you’ll have to have the landlord or property manager contact Experian RentBureau to set up the reference. Since there are fees (and extra work) involved, your landlord may have little interest in participating. If that’s the case, you can sign up for a rental payment service that works with Experian RentBureau.

When you do, you’ll actually make your rent payments through the rental payment service. The service will forward the rent to your landlord and then report the payment to Experian.

The downside to using a rental payment service is that you will usually have to pay a fee. Some services have a setup fee that could be as high as $50. But almost all have a per-payment fee as well. That fee can be a few dollars for each check payment or a percentage of either a debit card or credit card payment.

For example, if a service charges a 2.75% fee for a credit card payment and your rent is $1,000 per month, you will pay $27.50 per payment.

That’s obviously a bit steep. But if you’re looking to build a credit rating, it could be an expense worth paying.

Rental payment service providers that cooperate with Experian RentBureau include:

  • PayLease – Must sign up to determine fees.
  • PayYourRent – ACH fee (undisclosed) or 2.75% credit card fee.
  • RENTTRACK – ACH $6.95, debit card 2.75%, credit card 2.95%. ***Also reports to Equifax and TransUnion.***
  • ClearNow – Fees paid by landlord who might charge them back to you.
  • eRentPayment – ACH/eCheck $3 per transaction. ***Also reports to Equifax and TransUnion.***
  • rentler – $1.95 for bank transactions, 1.9% for debit cards, 2.9% for credit cards.

With services where the fee is paid by the landlord, it’s almost certain that the landlord will pass those fees on to you.

Rental Kharma

Rental Kharma is a service that reports your rent payment history to TransUnion. They do this after verifying your lease and your monthly payments with your landlord. After that, each payment that you make will be verified. You could also add your last 24 months of rent payments to fast-forward the process of building your credit score.

Rental Kharma isn’t a rental payment service. Instead, they contact your landlord once you’ve made your payment and verify that you made it on time. That means that though you will subscribe to the service for credit purposes, you will still make your rent payment directly to your landlord.

Rental Kharma also has what could be a big advantage for certain tenants. Rent payments are only considered late if they are more than 30 days past the due date. So if your rent is due on November 1, it will not be reported late to the credit bureau as long as it’s paid by November 30. But they do recommend that if you sometimes go beyond 30 days, you may not want to subscribe to the service. That is, rent payments more than 30 days late will count against you.

In order to join the service, you have to pay a one-time validation fee of $25. After that, you pay a monthly subscription fee of $6.95 for ongoing reporting. If you want to add your previous rent history, the fee is $5 for each month verified, up to a maximum of 24 months.

Your landlord must be willing to participate in the service, since they will need to verify your rent payments. But Rental Kharma is an easier sell to a landlord because the landlord isn’t required to pay any fees.

TransUnion RentReporters

You can also get TransUnion involved directly in rent reporting through their RentReporters service. Like Rental Kharma, they verify your rent payments with your landlord and then include the history on your TransUnion credit report.

Their website advertises that “The average credit score can increase 35 to 50 points in 15 days” as a result of adding your rent history to your credit report.

RentReporters has a one-time enrollment fee of $45.95. That fee includes both the landlord verification process and reporting up to two years of previous rental payments. To continue reporting future payments, there is a monthly subscription fee of $9.95.

If you have had different landlords in the past two years, RentReporters can verify your rent payment history for an additional fee of $50 for each landlord.

So that’s how to report rent payments to credit bureaus. All you need is a few extra dollars and a willing landlord, and you can have your rent payment history added to your credit report. If that history has been a good one, you could see an almost immediate increase in your credit score.


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Trading in your car at the dealer is guaranteed to lose you money. Yet many opt for this route because it’s easy. The better approach, however, is to sell your car yourself. You’ll get more money, and it’s easier than many think. Here’s how to sell your car fast and for top dollar.

Sell Your Car

In this guide, we’ll walk through the benefits of selling your car on your own. Then we’ll give you some practical tips on how to do it.

Why You Should Always Try to Sell Your Car Yourself First

Trading your car into a dealer when you purchase a new vehicle is quick and easy. That’s why so many people opt for this approaching to disposing of their car. Unfortunately, the dealer won’t give you the best price.

It also complicates the negotiations. With a trade-in, your must negotiate both the price of your new car and the value of your old car. Car dealers are experts at this process. You and I are not. By removing the trade-in negotiations, you greatly simplify the process.

By selling your car yourself, you can maximize the cash that you will receive. As an example, we valued a 2016 Volvo XC90. Using Kelley Blue Book, we compared the money we’d receive from a private party sale versus a deal trade in. The difference was almost $3,000.

Get the Estimated Value of Your Car

Since most of us aren’t car experts, you should get this information from a trusted third-party source. You can get an estimate from a dealer, but they may give you a lowball number under the assumption that you be trading the car in. What you actually want is what you can likely sell your car for.

Fortunately, there are online sources where you can get this information. Two of the best sources are Kelly Blue Book (which we used above) and You should also check used car buying sites such as AutoTrader and Craigslist.

In order to get the most accurate value of your vehicle on those sites, you need to be accurate in describing the details of the car. This will be particularly important in regard to the car’s overall condition since it can result in wide variations in value.

They will typically give you three values:

  • Trade-in
  • Dealer retail
  • Private party

Dealer retail will be the highest. It is unlikely, however, you will be able to get that price. You aren’t a dealer and don’t have a dealer’s marketing power. Trade-in will be the lowest, but it’s not what you’re going for. A private party sale will be the most relevant number, as it is the price that you will most likely get for your car on direct sale.

Once you have this number, you should price your vehicle accordingly. Too high and you may not even get anyone to look at the car. But price it too low, and you’ll be losing money.

Get the Loan Information if You Still Owe Money on Your Car

There are two important pieces of information that you will need if you have a loan on your car:

  1. The payoff balance on your loan, and
  2. How to get the title to your car in the shortest timeframe possible.

The payoff balance will let you know how much cash you can expect to clear on the sale. Alternatively, it may show that you are under water and might have to write a check in order to close out the loan after the sale. You need to know this information to decide if selling your car is even the right option.

The title information is just as important. If you have a loan on your car, then the title to the vehicle is in the possession of the lender. The sale of the vehicle has to happen first so that you will have the cash to pay off the loan. But in order to complete the sale of the car, you’ll have to be able to deliver the title to the new owner.There will be a delay in this

There will be a delay in this process after the sale is completed. But you want to get information from the lender so as to keep that timeframe as short as possible.

Find out what the payoff process is, and what the best way to retrieve the title will be. That will likely require getting specific names and addresses, to make sure that all correspondence goes to the right party. You’ll also have to check and see what type documentation the lender will require for the payoff, in addition to the payment itself.

Where to Advertise Your Vehicle for Sale

There are plenty of ways to sell your car online. This can include Craigslist and, but you could also try eBay and even Facebook. Also, do email blasts to everyone on your email list who lives in your local area. Even if a direct recipient has no interest, they may forward the email on to someone they know whose looking for a car.

But you don’t have to rely just on online sources. Some of the more traditional advertising methods can work as well. Create a flyer that includes important information about the car, as well as two or three color photos of the vehicle. Post them on the bulletin board at work, at your house of worship, and in any public places that will allow it.

Accepting Payment Proceeds from the Buyer of Your Car

Payment is a specific issue when selling your car yourself, so you will have to take several precautions.

Never accept a personal check. In a worst-case scenario, the buyer can make off with your car, and you’re stuck with a bad check – and the bank fees that you will be charged for it. In that situation, legal action will be your only resort. And that may not work if the personal check you accepted turns out to be fraudulent. It happens in the real world, and not infrequently.

At a minimum, insist that the buyer pay by either certified check or a bank check. Keep in mind that cashier’s checks can be forged. As Teresa Dixon from the Cleveland Plain Dealer recently noted,

It used to be that getting a cashier’s check was a sure-fire way to avoid fraud. Not anymore. The fraudulent cashier’s checks out there fool the banks sometimes. I’ve dealt with cases in the last few years where even PNC and Huntington tellers accepted cashier’s checks that later ended up no good. Sometimes even the police can’t tell.

Better yet, hold the closing of the sale at the buyer’s bank – the same one that the check is drawn on. That should enable you to verify that the funds are available in the buyer’s account.

If the buyer is using a loan to purchase your vehicle, hold the closing at the lending bank. That will enable you to get a bank employee involved in the process. If the new lender is not a local bank, hold the closing at your bank, and ask your bank to verify the authenticity of the check from the buyer’s lender.

None of this guarantees that you won’t get stiffed on the payment, but it does lower the chances considerably.

Selling Your Car Yourself – Keeping it Legal

There will be several steps on the legal side of the sale.

Bill of sale.You will need to prepare a bill of sale in order to complete the sales transaction. Google “automotive bill of sale” for your state in order to get an acceptable form, then complete it with all of the relevant information. The bill of sale will be important if there is an existing loan on your car, and you will not be able to produce the car title immediately.

Temporary operating permit. The buyer can use the bill of sale to obtain this permit from the state department of motor vehicles (DMV). This will allow the buyer to operate the vehicle until the title can be delivered. Receipt of the title can take anywhere from a few days to two or three weeks, so this is an important step for the buyer.

Release of liability. This is a document that is available on your state DMV website. It will confirm the sale of the vehicle. Don’t skip this step! Completing and filing this form with the DMV will release you of liability on the vehicle. File it immediately after the sale to avoid potential problems. The form will likely require the odometer reading at the time of sale. Contact your state DMV to get specific information about this form.

Pay required transfer fees. You can find out what these are from the DMV. This can include sales tax if your state charges it on auto sales. You will want to pay them immediately after the sale since that is when you will have the cash to do so. But in addition, the payment of fees will represent additional confirmation of the transfer of the vehicle, and therefore the release of your liability.

Don’t forget to remove the license plates! The license plates run with the owner, not with the car itself. As well, you could probably transfer the plates to your next vehicle. The buyer will have to work out the license plate situation immediately after the sale.

Though the process of selling your car yourself seems complicated, remember that it can result in your getting thousands more than what you will get by trading it into the dealer. In the end, it will almost certainly be worth the extra effort on your part.

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Do you ever have a sense that you have a bad 401(k) at work? If you do, you’re not alone. While a lot of employers have 401(k) plans, many of those plans are average or worse. But if you are in such a plan, you do have options.

Bad 401k at work

First we’ll look at how to evaluate a 401(k) plan. It’s much easier than you think. Then, if you find your retirement plan lacking, we’ll give you some actionable tips you can follow to make the most of a bad 401(k).

What Makes a 401(k) ‘Bad’

How do you know that you’re not just being a malcontent about your plan? Is it really bad? Here are some telltale signs:

  • High fees. High fees usually come in the form of high expense ratios. An expense ratio is the industry’s term to describe how much a mutual fund charges its shareholders. An expense ratio of 1.00% means that you will be charged 1.00% of the amount you have invested in the fund each year. While that may not sound like much, even a fee of 0.50% can result in hundreds of thousands of dollars in fees over a lifetime of investing. Generally, fees above 0.25% for an index fund or 0.75% for an actively managed fund are considered too high.
  • Limited investment options. Some 401(k) plans will have a single fund available for each of several sectors. This may include a US growth fund, a foreign market growth fund, a bond fund, a money market fund, and maybe two or three sector funds. The plan may also invest with a single mutual fund family, where you don’t find many attractive options. While the number of funds by itself is not critical, having limited options combined with high fees is a problem.
  • No- or low-employer match. One of the biggest attractions of any 401(k) plan is the employer matching contribution. But if your employer does not offer a match, or if the match isn’t particularly generous, it lowers the attractiveness of the plan.

If your plan has any of these limits, it’s almost certainly a bad 401(k) plan. You can do your best to make the most of it, but you will have to consider other options to compensate for the weaknesses in the plan.

Talk to Your Employer

The first step should be to talk to your HR department. Particularly when it comes to investment options and fees, employers often want to know if employees are happy with the retirement plan. Changes may not occur quickly, if at all. But it doesn’t hurt to ask.

Contribute Enough to Get the Maximum Employer Match

If your 401(k) plan is wanting, then you’ll probably want to limit the amount of money that you put into it. Still, if your employer does offer a match, you should contribute at least enough to get the maximum match. For example, if your employer offers a 50% match up to 3%, then you should contribute 6% of your pay to the plan, in order to get the full 3%.

That match is found money, and you should never ignore it. In addition, the match will turn a 6% contribution into a 9% contribution. That’s always worth pursuing, even if the investment options are lacking.

Choose the Investment Options with the Lowest Fees

If your 401(k) plan charges high fees, favor the investment options that have the lowest fees. And if there are transaction costs, it should go without saying that you should not actively trade the account. You will have to view your investments within the 401(k) as mostly static positions.

Of course, you’ll have to balance out the fee situation with the quality of the investments you purchase. A high-performing investment with high fees may be preferable to a low-performing investment with low fees.

Set up a Traditional or Roth IRA

Perhaps the best solution to a bad 401(k) plan is to invest outside the plan. The best option is through an IRA, either traditional or Roth. An IRA is a self-directed plan, which means you can choose the trustee where the plan will be held. You can choose an investment brokerage firm that will offer the widest investment selection at low fees. And you can contribute up to a set limit that can change each year (see the current limits here).

Even if your income is too high to get a tax deduction on a contribution to a traditional IRA, it will still be worth putting money into an account. In addition to the fact that you will be gaining self-directed investing for the plan, nondeductible contributions to an IRA will reduce your tax liability in retirement. And the investment earnings will still accumulate on a tax-deferred basis.

A Roth IRA serves the same purpose. While the contributions are never deductible, qualified withdrawals are tax-free. A Roth has the same annual contribution limits as a traditional IRA.

Set Up a Self-employed Retirement Plan if You Have a Side Business

If you have a side business, you can set up a retirement plan for that business. There are various options available.

The SEP IRA is a common self-employed retirement plan. However, it tends to work best for people with higher business income. The SEP effectively limits your contributions to 20% of your business earnings. This can be quite generous if your business earns $100,000 and you can make a $20,000 contribution. But if your side business earns $10,000, you will be limited to a $2,000 contribution.

Better options would be either a Solo 401(k) or a SIMPLE IRA. Each allows you to contribute 100% of your income up to the plan limit. In the case of the solo 401(k) plan, the maximum contribution is $18,000, or $24,000 if you are 50 or older (these limits can change from year to year). You can also make an employer match of effectively 20% of your total business earnings.

The SIMPLE IRA has a maximum contribution of $12,500, or $15,500, if you are 50 or older (again, these limits can change each year). The maximum contribution isn’t as generous as it is for either the SEP IRA or the solo 401(k). But if your business earnings are within those contribution limits, it can be a good plan to have.

If you do have a self-employed retirement account, the combination of contributions to that account, plus your employer plan, cannot exceed $54,000 per year, or $60,000 per year if you are 50 or older. Both totals include the employer match and also can change each year.

Invest in Taxable Accounts

This can be an especially good strategy if your income is too high to make a tax-deductible contribution to a traditional IRA or to participate in a Roth IRA plan. You can simply save money in taxable investment accounts in addition to your employer-sponsored 401(k) plan.

There’s no tax deduction for making contributions to taxable accounts, nor do you have the benefit of tax-deferred investment income. But that also opens up the possibility of having tax-free income in retirement. That is, you will be able to make withdrawals from your taxable accounts without having to pay income tax on the amount of those withdrawals. (Of course, the income you earn on taxable accounts will always be subject to income tax in the year earned.)

As you can see from this list, you are not without options if you have a bad 401(k) at work. Participate in the plan at some minimal level, but maintain the bulk of your retirement assets in other accounts.


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