What Target Date Fund Should I Choose? How to Pick Yours

Start with the year you plan to retire

The default rule is short. Pick the fund whose year sits closest to the year you plan to stop working. FINRA gives the same starting point, telling investors to choose the fund with the name closest to the date they plan to retire.

If you aim to retire at 65, find the year you turn 65. Someone born in 1990 turns 65 in 2055, so a 2055 fund is the starting point. Series do not offer every single year, so take the nearest one on the menu.

That is a starting point, not a verdict. The SEC's investor bulletin says you may decide another year suits you better. Its own example: even if you plan to retire in 2060, a 2050 or 2070 fund may be more appropriate for you, based on your objectives, risk tolerance, and other assets. Not sure what year you are aiming at? Map your own timeline with our retirement savings calculator.

The year is really a dial for how much stock you own

Here is the part most pages skip. The year on the label is a proxy for your stock exposure, not a promise about your retirement date. A later fund year holds more stock, because its target sits further away. An earlier fund year holds less stock and more bonds.

So the year is the lever you actually control. Choosing a later year is a way of saying you want more growth and can live with bigger swings. Choosing an earlier year is a way of saying you want a smoother ride.

The tradeoff is the ordinary one. More stock means more expected growth and more risk. Our stocks vs bonds comparison walks through that balance, and the asset allocation calculator shows what a given mix looks like.

One caution. Do not drift more than a step or two from your real date without a reason. The further you move, the less the fund matches the job it was designed to do.

'To' versus 'through': the glide path question

A glide path is how the fund shifts from stocks toward bonds over time. The Department of Labor draws the line clearly. A 'to' approach reduces the fund's equity exposure to its most conservative point at the target date. A 'through' approach keeps reducing equity past the target date, so the fund does not reach its most conservative point until years later.

That gap is large in practice. A 'to' fund turns conservative earlier than a 'through' fund with the same year on the cover. Two funds both labeled 2055 can hold very different amounts of stock on the very same day. The SEC bulletin makes the same point, noting that funds with the same target date often hold very different investments.

The Labor Department also explains who each design assumes you are. A 'through' fund is generally built for people who make periodic withdrawals across their retirement years. A 'to' fund assumes employees will want to cash out on the day they retire. If you do not know which one you own, you may be surprised later.

The fix is one document. Open the fund's summary prospectus and find the sentence that says whether the glide path runs to or through the target year.

Index or active: the name trap

Some fund families run two target date series with nearly the same name. One is built from index funds inside. The other is actively managed and costs more. The names can differ by a single word, such as a 'Freedom Index' series sitting beside a same-brand 'Freedom' series.

So read the full legal name of the fund, not the nickname on your plan's website. Look for the word Index. Then check the ticker, because every mutual fund share class has its own ticker, and that is the cleanest way to confirm which fund your account actually holds.

Cost is worth this trouble. The Labor Department's own fee example shows why: a worker with a $25,000 401(k) balance averaging a 7% return ends with about $227,000 after 35 years paying 0.5% in fees, and about $163,000 paying 1.5%, assuming no further contributions. The SEC adds a wrinkle specific to these funds. Because a target date fund often invests in other funds, fees may be charged by both the target date fund and the underlying funds.

For a fund-by-fund look at what different families charge, see our best target date funds roundup. If you would rather assemble the mix yourself, start with best index funds and our index fund vs ETF comparison.

Share class: the same fund at a different price

There is one more cost trap, and it hides in plain sight. The same fund can be sold in several share classes. The SEC puts it plainly: all classes of a fund hold identical investments and have the same objectives and policies, but each class has different fees and expenses, so each class produces different results.

In a workplace plan you usually do not pick the class. The plan picks it for you. That means two people holding the same 2055 fund at two different employers can pay different amounts for the same portfolio.

You can still see what you pay. Since 2012, Labor Department rules require that participants in 401(k)-type plans receive specific fee and expense information about the investment options in their plan. Find the expense ratio for your exact class, then run it through the 401k calculator to see the effect on your own balance.

Hold one target date fund, not one of several

This is the rule people break most often, and it is the quietest way to undo the whole design. A target date fund is already a complete portfolio. It holds a mix of stock, bond, and other investment funds inside one ticker. Anything you add beside it changes the mix you signed up for.

FINRA says to look at your overall investment portfolio, because an outsized holding of stocks or bonds elsewhere increases your weighting in those asset classes overall. The SEC gives the same instruction: consider your overall asset allocation and any other investments or sources of retirement income you have.

The failure mode is specific. Say you hold a 2055 fund, then add an S&P 500 fund on the side because stocks did well. Your real stock share is now higher than the glide path intends. The fund cannot correct for money it does not manage, so it keeps rebalancing only its own slice while your true mix drifts.

Holding two target date funds with different years is the same mistake in a different outfit. The blend just lands you on a fund year somewhere in between. If you want that mix, choose that year instead. You can sanity-check your combined holdings in our investment calculator hub.

Where to hold it: tax-advantaged accounts first

A target date fund fits best inside a 401(k), an IRA, or another tax-advantaged account. The reason is the automatic rebalancing that makes the fund appealing in the first place.

The fund sells and buys on its own schedule to keep the glide path on track. Those sales can create capital gains, which the fund distributes to shareholders. You do not choose the timing.

In a taxable account that matters. FINRA states that you pay taxes on a fund's income distributions, and usually on its capital gains, if you own the fund in a taxable account. FINRA also notes you can owe capital gains tax even when the fund's overall return is down for the year, if the fund sold investments for more than it paid. Reinvesting the distribution does not remove the bill.

Inside a retirement account the picture changes. FINRA says that if you own the fund in a tax-deferred or tax-free account, such as an individual retirement account, no tax is due on those distributions when you receive them. So the hands-off design that helps you in a 401(k) can create yearly tax paperwork in a brokerage account. To see how small yearly drags compound over decades, try our compound interest calculator.

A five-minute check before you commit

Run these five checks using only the fund's own documents and your plan's fee disclosure. They take a few minutes.

1. Find the fund year closest to the year you plan to retire, then decide if you want a later year for more stock or an earlier year for less. 2. Open the summary prospectus and confirm whether the glide path runs to or through the target year. 3. Look for the word Index in the full legal fund name, and confirm the ticker. 4. Find the expense ratio for your exact share class, including the cost of the underlying funds. 5. Check that this fund is the only holding in that account.

If any answer surprises you, the check did its job. This page explains how the choice works and what to verify. It is general education, not investment advice, and no single fund is right for everyone.

Frequently asked questions