What Is an 801k Retirement Fund?
An 801k is nothing more than an investment product offering investors information on direct purchase plans (DPPs) and dividend reinvestment plans (DRIPs) for a fee. You can get equivalent information elsewhere for free.
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Term Origination
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The term 401k comes from the section and paragraph--401k--of the Internal Revenue Code that created that type of account. There is no 801k section. That term was coined by the writers of a newsletter seeking marketplace traction for its version of no-load stock investing, namely DPPs and DRIPs. 801k plans are taxable, unlike a 401k, and do not provide the employer match that a 401k allows.
Plan Differences
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You can set up a DRIP/DPP account on your own, with the 801k. DRIPs generally require that you own at least one share of stock in the company. DPPs allow you to buy that share--though the plans generally require you to invest a minimum dollar amount--directly from the company in which you are investing. Firms with DPPs invariably also offer DRIPs.
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Availability
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A lot more companies offer DRIPs than offer DPPs.
Advantages
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Generally, DPPs and DRIPs allow you to invest smaller amounts of money than you typically would be required to invest through a broker and usually with smaller investment fees. In fact, few companies don't charge a fee or even offer a discount for buying stock through their plan. You also can purchase fractional shares of stocks. Plus, it can be fun to essentially build your own mutual fund--if you have the time.
Disadvantages
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You become responsible for doing the research and seeking out the information on the plans. In some cases, the fees you wind up paying will be more than you would pay through many no-load mutual funds, although less than through a traditional stockbroker.
Alternatives
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There are some avenues--Sharebuilder.com is one--for direct investing without going through the companies. Such services charge a fee but allow you to set up a DRIP, even for companies that don't offer them directly.
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References
Resources
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