Do I Need a Financial Advisor for My 401(k)?

With the demise of private pensions, 401(k) plans have become the de facto employer-sponsored retirement plan for the majority of American workers. These company retirement plans make it easy for employees to save for the future through payroll deductions. However, most employees are on their own when picking their 401(k) investments and how much to contribute each year. While there are some rules you can follow on your own, a financial advisor may also be able to help you make the most of your 401(k).

What Is a 401(k)?

A 401(k) is a retirement plan that lets employees save part of their paycheck through automatic payroll deductions. These contributions can be made before taxes through traditional accounts or after taxes with Roth 401(ks), depending on the plan and your preference.

Traditional contributions lower your taxable income now, but you’ll pay taxes when you withdraw the money later. Roth contributions don’t reduce your current taxes, but qualified withdrawals in retirement are tax-free.

For 2025, the annual limit for employee contributions is $23,500. People age 50 and older can contribute an extra $7,500, and those between 60 and 63 are allowed an additional $11,250 in catch-up contributions. These higher limits are meant to give older workers a chance to increase their retirement savings as they approach the end of their careers.

Some employers also match part of what you save. For example, they might add $0.50 for every dollar you contribute, up to a certain percentage of your pay. This match adds to your total savings and can have a big impact over time. How much your employer matches and when that money becomes fully yours depends on the plan’s rules.

How a Financial Advisor Can Help Your 401(k)

While 401(k) plans and other company-sponsored retirement accounts offer valuable benefits, they typically do not provide financial advice to participants. Because of this, many workers wonder if they need a 401(k) financial advisor.

Here are four ways that an advisor can help:

• Select allocation of investments: Most 401(k) plans have more limited investment options compared to IRAs, so choosing the investments that align with your needs can be a challenge. A financial advisor can help you allocate your contributions to investment options based on your goals.
• Comprehensive financial planning: Many investors have money outside of their 401(k) plan. Financial advisors provide comprehensive financial planning that incorporates all of your assets, not just the accounts that they manage.
• Maximize tax benefits: When creating your financial plan, a financial advisor’s advice can help you maximize tax benefits. This includes deciding between a Traditional or Roth 401(k), your annual contributions, and when to start withdrawing the money from each account.
• Self-direction option: If your 401(k) plan offers a self-directed option, you are able to select investments beyond the options chosen by the company. Your financial advisor can suggest other investments that are most suitable to your goals and risk tolerance.

Downsides of Having an Advisor for Your 401(k)

While financial advisors can potentially help you improve your 401(k) investing strategy, there may be downsides as well. Here are three things to keep in mind when hiring an advisor:

• You must implement the strategy. While a financial advisor can provide financial advice, you must be the one to implement the strategy because they do not have access to your 401(k) account. Plus, you’ll need to provide copies of your statements so they can monitor progress.
• How they get paid: Many financial advisors get paid based on a flat fee, as a percentage of assets managed or commissions off products they sell. A 401(k) plan will not pay your financial advisor for their advice, so how will they get paid? Because they aren’t paid from the investments, you may need to pay them directly for their services. Some advisors are willing to include your 401(k) plan into your overall financial planning based on the potential of a future rollover when you leave your current job.
• Investment options are limited. Because your investment options are limited within a 401(k), the potential benefit of a financial advisor may be limited as well. Their ability to suggest alternative investments or allocations may not change your 401(k) performance enough to offset fees that they charge.

Estimate how much working with a financial advisor could impact your net worth using our interactive Financial Advisor Value Calculator.

Do I Need a 401(k) Financial Advisor?

While many investors are able to choose their 401(k) investments on their own, having an independent financial advisor may be beneficial. The advisor can be a sounding board for your investment choices. And they lend a steady hand encouraging you to stay the course when emotions take over during a market downturn.

Advisors also can incorporate your 401(k) plan balances and investments into your overall financial planning. For example, while your 401(k) plan may offer a solid international fund and S&P 500 fund, the other choices may have terrible track records or high fees. Your advisor could recommend using your 401(k) for those two funds, while your IRA and other investments round out your preferred allocation with better funds.

Ultimately, determining whether to hire a financial advisor for your 401(k) depends on various factors, including your comfort level with investments, financial complexity and willingness to pay for guidance. While an advisor can offer tailored advice and oversight, some investors may find they can achieve their goals independently by leveraging the options within their 401(k) plan.

Bottom Line

A 401(k) plan is often the largest retirement account that an investor owns. While it is not necessary to hire a financial advisor, many investors could benefit from the services of a professional advisor. By including your 401(k) assets into planning, financial advisors can create a comprehensive financial plan to meet your needs and minimize taxes. Before pursuing this strategy, ask potential advisors how they incorporate 401(k) plans into their advice and how they get paid for their services.

Tips for Investing for Retirement

• When saving for retirement, one of the most important strategies is proper asset allocation. This ensures that you’re taking an appropriate amount of risk based on your goals and timeframe for investing. Our asset allocation tool helps you to allocate your investments based on your answers to a few basic questions.
• When deciding whether or not you need a financial advisor for your 401(k), the best approach is to interview them. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Next Steps

Do you want to learn more about financial advisors? Check out these articles:

• Financial Advisor vs Self-Investing
• What Are the Benefits of Working With a Financial Advisor?
• What does a Financial Advisor Do?
• What is a Fiduciary Financial Advisor?
• Should I Use a Financial Advisor or Do it Myself?
• Are Financial Advisors Worth it?

Photo credit: ©iStock.com/primipil, ©iStock.com/bymuratdeniz, ©iStock.com/insta_photos