To change the investments in your 401k, log into your plan’s online portal, go to the investments or allocations page, and enter new percentages across the funds you want to hold. The percentages must total 100%, the trade executes at the end of the trading day at each fund’s closing price, and your new holdings usually settle within one to two business days. There is no tax consequence for moving money between funds inside the plan, and most plans let you do this any business day at no cost.
The harder part is knowing which two settings to change, understanding the rules that govern when your trade actually fills, and deciding what to move the money into.
Change Your Existing Balance and Your Future Contributions Separately
Your plan portal treats these as two independent settings, and this is where people most often slip up. Adjusting your existing balance means selling shares of one fund and buying shares of another with the proceeds. Adjusting future contributions changes how your next paycheck’s deduction gets split across funds. Changing one does not change the other. People routinely update their future contributions and forget that their existing balance is still sitting in the old allocation months later.
If you want your whole 401k realigned, you need to update both. The portal will usually label them clearly, with something like “change current investments” for your balance and “change future contributions” for payroll deferrals. Make the change in both places, confirm each one, and keep the confirmation numbers.
Each fund selection must be entered as a whole percentage, and the total across all funds must equal exactly 100%. If you want 60% in a broad U.S. stock index fund, 25% in an international stock fund, and 15% in a bond fund, you enter those three numbers and the system rejects anything that doesn’t sum correctly. Some plans let you enter dollar amounts instead, but percentage entry is far more common.
Internal Trades Don’t Trigger Taxes
Buying and selling funds inside a traditional 401k does not create a taxable event. There are no capital gains taxes when you sell a fund that has grown in value, and no deductible losses when you sell one that has dropped. The entire account is tax-deferred, and the IRS doesn’t care what happens internally until you take money out.
This applies to every type of transaction within the plan: moving your entire balance from one fund to another, splitting contributions across new funds, or using an automatic rebalancing feature. You won’t receive a 1099 for any of it. Taxes only enter the picture when you withdraw money, at which point distributions from a traditional 401k are taxed as ordinary income.
A Roth 401k works slightly differently on the back end, since qualified withdrawals are tax-free, but the same principle applies while money stays in the plan. Swapping funds inside a Roth 401k generates no tax liability either. Don’t let tax concerns stop you from adjusting your allocation.
How and When the Trade Actually Executes
Mutual funds in a 401k don’t trade in real time like individual stocks. They price once per day at the market close, using a figure called the net asset value. When you submit a reallocation request during business hours, your trade executes at that day’s closing NAV.1Fidelity. What Is NAV and How Does It Work? If you submit after the market closes at 4:00 PM Eastern Time, the trade processes at the following business day’s closing price.2Fidelity. After Hours Trading
Submitting at 9:31 AM and submitting at 3:59 PM gets you the same price. There is no way to time intraday price movements with 401k mutual fund trades, and no reason to watch the market minute by minute when you rebalance.
After you confirm the trade, the portal generates a confirmation number, and most administrators also send an email. The actual settlement, meaning the old fund shares disappear and the new ones appear in your account, generally takes one to two business days.3Fidelity Investments. Trading FAQs: Placing Orders Check your account after that window to confirm the new holdings match what you submitted.
Trading Restrictions That Can Block You
Plans impose trading restrictions to discourage rapid in-and-out moves. The most common is a round-trip rule: if you buy into a fund and then sell out within a set window, often 30 days, you may be blocked from buying back into that fund for a period or flagged for excessive trading.4Fidelity Investments. Fidelity Funds Update Excessive Trading Policy Some fund families enforce this with redemption fees, a small percentage deducted from your sale proceeds if you sell within the restricted period. These rules are fund-specific, so your international stock fund might carry a 30-day restriction while your bond fund has none.
Plans may also limit how frequently you can make changes overall. Some allow daily trading, others restrict reallocations to once per month or quarter. Your Summary Plan Description spells out which rules apply. If you’re planning a major overhaul, check these limits first so you aren’t forced to make changes in stages over several months.
Blackout Periods
A blackout period is a temporary freeze on all account activity, most commonly triggered when an employer switches plan recordkeepers. During a blackout, you cannot change investments, take loans, or request distributions. Federal regulations require your plan administrator to notify you at least 30 days, but no more than 60 days, before the blackout begins.5eCFR. 29 CFR 2520.101-3 – Notice of Blackout Periods Under Individual Account Plans The notice must explain what rights are suspended, when the blackout starts and ends or an estimated end date, and who to contact with questions.
Blackouts typically last a few days to a few weeks. If you receive a notice and want to rebalance, do it before the freeze takes effect. The exception to the 30-day advance notice rule is when the blackout is caused by unforeseeable events, in which case the administrator must notify you as soon as reasonably possible.
Picking What to Change Into
Before entering new percentages, pull up your plan’s fee disclosure. Federal rules require your plan administrator to send this at least once a year for any plan where participants direct their own investments, and it lists every available fund along with its historical performance and expense ratio.
Expense ratios deserve more attention than most people give them. An expense ratio is the annual fee a fund charges as a percentage of your invested balance. Passive index funds commonly charge between 0.03% and 0.20%, while actively managed funds often run above 0.50% and can exceed 1.00%. On a $100,000 balance, the difference between a 0.05% fund and a 0.80% fund is roughly $750 a year, and that gap compounds against you over decades.
Target-Date Funds
Target-date funds are the most common default investment in 401k plans. The Department of Labor recognizes them as a qualified default investment alternative, which is why many participants who never actively chose a fund find their money parked in one.6U.S. Department of Labor. Default Investment Alternatives Under Participant Directed Individual Account Plans A target-date fund automatically shifts its mix from stocks to bonds as the target retirement year approaches. A fund labeled “2060,” for example, holds mostly stocks now and will gradually increase its bond allocation over the next 35 years.
If you want a hands-off approach, a single target-date fund aligned to your expected retirement year can serve as your entire 401k allocation. The fund handles rebalancing internally. If you want more control, you’ll need to build your own mix from the individual funds on the menu.
Automatic Rebalancing
Many plans offer an automatic rebalancing feature. Once you set your target percentages, the plan periodically sells shares of funds that have grown beyond their target weight and buys shares of funds that have fallen below it, keeping your allocation in line without manual intervention. Enable this if your plan offers it. Market movements can quietly distort your mix: a portfolio that started at 60/40 stocks-to-bonds can drift to 75/25 after a strong bull market, leaving you with more risk than you signed up for.
If You’d Rather Not Pick Yourself
Many plans offer a managed account option. A managed account service, sometimes an algorithm-driven robo-advisor and sometimes a human advisory team, takes over your allocation decisions based on your age, salary, risk tolerance, and retirement timeline. The service rebalances automatically and adjusts your allocation as you age.
The tradeoff is cost. Managed account services within a 401k typically charge an annual asset-based fee on top of the underlying fund expenses, often in the range of 0.50% to 1.50% of your account balance. On a $200,000 balance, that’s $1,000 to $3,000 per year in additional fees. Anyone providing investment advice to a plan for compensation is held to ERISA’s fiduciary standard, meaning they must act in your interest.7U.S. Department of Labor. Fiduciary Responsibilities
Whether the fee is worth it depends on your situation. If you’re comfortable choosing a single target-date fund or building a simple two-or-three-fund portfolio, you can get most of the same benefit for a fraction of the cost.
Going Beyond the Standard Menu
Some 401k plans offer a self-directed brokerage account, sometimes called a brokerage window, that lets you invest beyond the standard fund menu. Through a brokerage window, you can buy individual stocks, ETFs, and mutual funds from outside the plan’s core lineup.
Using one adds complexity and often additional cost. Many plans charge a quarterly maintenance fee, commonly in the $10 to $25 range, and some cap how much of your balance can go into the window, with 50% a typical limit. You’ll need to complete separate paperwork and acknowledge additional risk disclosures before gaining access. If your plan’s core menu includes low-cost index funds covering domestic stocks, international stocks, and bonds, you can build a sound portfolio without touching the brokerage window.
Moving Out of Company Stock
If your employer contributes company stock to your 401k, federal law gives you the right to move that stock into other investments. Under ERISA, participants who have completed at least three years of service must be allowed to diversify out of employer securities in their accounts. Concentrating too much of your retirement savings in the same company that pays your salary creates dangerous overlap: if the company struggles, you could lose both your income and a large share of your retirement savings at once.
Plans handle this differently. Some allow continuous diversification, while others offer periodic election windows. Check your plan’s rules. Financial advisors commonly recommend keeping no more than 10% to 15% of your retirement portfolio in any single stock, including your employer’s.
How Often to Come Back and Do This
There’s no federal rule dictating how often you should change your 401k investments. Two common approaches work well for most people.
The first is calendar-based rebalancing: check your allocation once or twice a year, often alongside tax season or open enrollment, and move things back to target if they’ve drifted. The second is threshold-based rebalancing: make changes whenever any single fund drifts more than five percentage points from your target. Either method imposes discipline without creating the kind of frequent trading that triggers restrictions.
Younger workers with decades until retirement can tolerate more stock exposure, while those approaching retirement often benefit from gradually increasing their bond allocation. Starting to tilt more conservative around 10 to 15 years out gives you time to adjust gradually without being forced to sell stocks during a downturn. If you’re already in a target-date fund, this shift happens automatically, which is the entire point of those funds.