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Most 401(k) plans provide a little-known tool that can increase an account’s flexibility, expand the available investments and potentially increase total returns. The tool can be especially valuable during the retirement years if the account owner wants to generate more income.

The tool is known as a self-directed brokerage account or brokerage window.

Many plans have the option but don’t publicize it.

The plan sponsors don’t want to be blamed when participants make risky investments they don’t understand, potentially incurring losses. The plan administrators also might earn less money from an SDBA than from the funds offered through the core plan options.

An SDBA is exactly what it sounds like. The 401(k) plan makes an arrangement with a brokerage firm. An employee participant can elect to shift his or her account’s funds to an account at the broker.

The account still is in the 401(k) plan and is subject to the 401(k) rules on distributions, loans and other transactions. But the account now can be invested in the choices offered through the broker instead of the limited options in the core 401(k) plan.

The 401(k) plan selects the broker who operates the SBDA. Employees cannot choose a broker.

There might be other restrictions.

All the investments available to the broker’s regular clients might not be available in the brokerage window. To limit their liability, 401(k) plan sponsors often exclude riskier choices such as options and futures contracts, commodities, unlisted stocks, selling stocks short, and more.

The limits exist because the law imposes some responsibility on employers to ensure participants are sufficiently educated to make appropriate investment decisions. Employers are afraid they’ll be sued if a participant’s investments do poorly.

Despite potential restrictions, choosing the SBDA gives the employee far more choices than the core 401(k) plan.

The SDBA is particularly valuable at times, such as this year, when nontraditional investments have higher returns than U.S. stocks and bonds.

Through the brokerage window, a 401(k) account might invest in gold, Bitcoin or commodities through exchange-traded funds. International stocks can be owned through ETFs.

An investor who wants to invest in a sector or section of the market, such as the Magnificent Seven, often can do that by buying an ETF.

The SDBA also might allow the 401(k) account to buy individual stocks instead of only ETFs or other funds. The employee might be able to buy individual bonds, certificates of deposit or other broker offerings.

Many core 401(k) plans limit the number of times an employee can change investments during the year or allow changes only during certain time periods. This is done partly to reduce the plan’s costs and partly to prevent employees from making emotional decisions during times of high market volatility.

The brokerage window often doesn’t have these restrictions or is less restrictive than the core 401(k) plan.

The most-used investments in many 401(k) plans now are target date funds. These are diversified funds that change their asset allocations over time according to the target retirement date in a fund’s name.

The allocation might not fit the employee’s risk level, goals or other factors. The brokerage window allows the employee to choose a target date fund that’s not in the core 401(k) offerings or customize the asset allocation of the account.

Another potential advantage is that the SDBA might make it easier to work with a financial advisor and have that advisor make trades through the account. Most financial advisors cannot make trades through a 401(k) plan. But the advisor might be able to make trades when the 401(k) funds are in a brokerage account.

Despite its advantages, an SDBA is not for every employee.

The option requires far more involvement from the employee. There is no default investment option. The employee must research and select the investments for the account from all the investments available through the brokerage window or arrange to have a financial advisor do that work.

The employee also needs to confirm what happens when contributions are taken from each paycheck. The plan might automatically transfer the money to the SDBA. But in some plans the employee must transfer the funds to the SDBA after each pay period.

Also, a 401(k) plan usually automatically allocates each contribution to the core account as predetermined by the employee. But in the SDBA, the employee usually must manually allocate the contributions each time they’re made.

Many 401(k) plans charge an extra annual fee to those who select the SDBA. It’s usually modest, but it’s an extra cost.

The broker might charge commissions or trading fees for some or all transactions. It’s important to which transactions that will trigger additional costs.

Also, a 401(k) account often can buy “institutional shares” of the funds offered by the plan. Institutional shares charge the lowest fees to investors. Institutional shares are not likely to be available to the SDBA. If the SDBA invests in mutual fund shares, it probably will be retail investor shares that charge higher expenses.

The 401(k) plan might limit the percentage of an account that can be transferred to the SDBA. The most frequent limit probably is 50% of the account value.

Study the terms of the SDBA carefully to fully understand all its costs and restrictions.

Not all 401(k) plans offer the brokerage window. Most of those that do require an employee to complete a form acknowledging that the option is riskier than the core 401(k) plan and that the employer isn’t responsible for the investment choices the employee makes.

In the form, the employee usually affirms that he or she is an informed or experienced investor and knows the risks of investing outside the plan’s mutual fund offerings. The Department of Labor in 2012 floated the idea of making employers responsible for the consequences of any investment selected by 1% or more of its plan participants. The proposal was withdrawn, but it increased caution among 401(k) sponsors.

It’s important to emphasize that the SDBA doesn’t remove any assets from the 401(k) plan. The funds are subject to the same tax, distribution and other rules as other 401(k) money.

Most IRAs are funded with rollovers from 401(k) accounts. The main reason for the rollovers is that departing employees believe IRAs give them more benefits and lower costs than the 401(k) plan.

The SDBA option could tip the decision for departing employees in favor or keeping funds in the 401(k) plan. For current employees, an SDBA could allow investments not available in the core plan and increase long-term returns.

An SDBA also could give a retired employee the opportunity to transfer some of the 401(k) money to an annuity when an annuity option isn’t available through the core 401(k) plan.