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A target-date fund holds stocks and bonds, rebalances, and shifts toward bonds as the year in the name gets closer. A three-fund mix is a total US stock fund, a total international stock fund, and a total bond fund, at a split you set. The three-fund mix beats the target-date fund only if you rebalance it, including after a drop. If you will not, buy the cheaper target-date fund and stop opening new tickers.
Updated 2026-10-03 · 10 min read · Educational, not investment advice. Repeat the fee example in the compound calculator. Picking the ETF is a different page. Which account holds the bonds is asset location. No new calculator and no new paid file.
IR-2025-111 (November 13, 2025) points at Notice 2025-67. The 2026 employee deferral for a 401(k), 403(b), governmental 457, and the federal Thrift Savings Plan is $24,500, up from $23,500 in 2025. The catch-up for age 50 and over is $8,000. Employees who turn 60, 61, 62, or 63 in 2026 have a higher catch-up of $11,250 instead of $8,000. An IRA is $7,500, plus $1,100 at age 50. None of those ceilings move because you picked a target-date fund instead of three index funds.
| 2026 limit | Amount | Moves the cap? |
|---|---|---|
| Employee deferral, 401(k) / 403(b) / governmental 457 / TSP | $24,500 | No |
| Catch-up, age 50 and over | $8,000 | No |
| Higher catch-up, age 60, 61, 62, or 63 | $11,250 | No |
| IRA contribution | $7,500 | No |
| IRA catch-up, age 50 and over | $1,100 | No |
The order of those dollars, match first, is the 401(k) vs IRA vs Roth page. This page is only the thing the contribution buys.
| Target-date fund | Three index funds | |
|---|---|---|
| What you hold | One fund. The name carries a year. | US stock, international stock, and bonds. You set the percents. |
| Rebalance | The fund does it. | You do it. Once a year is the usual calendar. |
| Stock share over time | Follows that fund's glide path. | Stays at your split until you change it. |
| Fee | One line on the fee table. A fund of funds should already include the underlying funds. | The weighted average of the three lines. |
| Usual home | 401(k) or IRA, if you will not rebalance. | The same accounts, if you will. A taxable account is a tax question, not a second portfolio. |
If you never picked an investment, the plan may have used a qualified default investment alternative. 29 CFR 2550.404c-5(e)(4)(i) describes a mix that changes with age, and it gives a life-cycle or targeted-retirement-date fund as an example. When the plan meets the notice rules, the regulation treats you as directing those defaulted dollars. It does not say the fee is fine. The fiduciary still selects and monitors the fund. You can still move the balance to the plan's index funds if you will rebalance them.
Investor.gov defines a target-date fund as a diversified fund that shifts toward a more conservative mix as it approaches a particular year. SEC testimony on October 28, 2009 split the designs that still show up in prospectuses. Some glide paths end at the target date. Others keep changing for as long as 30 years after it. Two funds with 2050 in the name can hold different stock percentages on the same day.
Read the glide-path chart in the current prospectus. Do not treat a 2009 stock percentage, or a fund company's marketing slide, as today's allocation. If the path adds bonds sooner than you will accept, a later date is the stock-heavier target-date fund. Then leave it. A second target-date fund is not a fix. It is two glide paths you are no longer tracking.
The rates below are examples, not a quote and not a forecast. Gross return assumed: 6% a year before fees. The compound calculator divides the annual rate by 12. Start at $0. Add $500 a month for 30 years. Contributions are $180,000 either way.
Example, 0.05% fee
Type 5.95. Growth about $317,481. A target-date series that already holds cheap index funds can land near this line. Open the hash and change the rate.
Example, 0.45% fee
Type 5.55. Growth about $281,127. Gap about $36,354. An active series can land near this line. The ticker does not tell you which.
If the prospectus fee table already includes the underlying funds, do not subtract those expenses again. Replace 5.95 and 5.55 with your own assumption minus the fee-table number. This page does not scrape a live expense ratio and freeze it.
The three-fund side of that gap is real only if the behavior is real. Once a year, put the split back. After a drop, that means selling bonds and buying stocks. If you will skip that year, the automatic rebalance is what the target-date fee pays for. When the plan offers a cheaper target-date series, use that one.
Inside a 401(k) or IRA, trades inside the fund are not a tax bill this year. In a brokerage account, a target-date fund can distribute capital gains you did not choose to sell. A broad ETF you do not sell is usually quieter. That is not a reason to trade. Expense ratio, tracking difference, and the fund you already own in the 401(k) are on the ETF page. Which account should hold the bonds is asset location, and the paid sequence is that wall. This page does not add another tax-location essay.
Sometimes it holds index funds. Sometimes it holds active funds. Read the fee table. 0.05% and 0.45% on this page are examples, not a quote.
Some paths add bonds earlier than you will accept. Read the chart. A later date, or a three-fund mix you will rebalance, is the stock-heavier choice. Then leave it. Do not add a second target-date fund.
A to path finishes at the target date. A through path keeps shifting after it. SEC testimony on October 28, 2009 described paths that end at the date and paths that run as long as 30 years past it. Use the current prospectus.
No. Notice 2025-67: employee deferral $24,500, age-50 catch-up $8,000, ages 60 to 63 catch-up $11,250, IRA $7,500 plus $1,100. The fund is what the contribution buys.
A 401(k) or IRA hides the fund's trades from this year's tax bill. A brokerage account can distribute gains you did not sell. A broad ETF you hold is usually quieter. That is the ETF page, not a trade signal.
$500 a month for 30 years at a labeled 6% before fees: $497,481 at 5.95%, $461,127 at 5.55%, gap $36,354. You still have to rebalance the cheaper funds. If you will not, pay for the rebalance, and prefer the cheaper target-date series.
You can. If the ETF repeats stocks the target-date fund already holds, you own the same market twice and you stopped counting the bonds. One target-date fund, or the three funds, is the portfolio.
Asset location is the placement wall. This page stays free. The compound calculator repeats the fee example. There is no second playbook for the same choice.
Educational only. Contribution limits are Notice 2025-67 via IR-2025-111. Expense ratios in the example are not today's quote. Verify the prospectus and the plan lineup before you move money.