24 July 2017

Ways to Cut Your 401(k) Fees

#
Share This Story

If your 401(k)’s composite expense ratio is higher than 0.1% a year, then you should be looking for an escape hatch. It could save you a pile of money. If the mere question about ratios leaves you flummoxed, you have company. Plenty of employees don’t pay attention to what they are losing to fund fees. The difference between high-cost funds and low-cost funds could easily add up over the course of a career to several hundred thousand dollars.

The operators of retirement plans and even employers do not necessarily mind the state of confusion that prevails. One way or another the considerable paperwork cost of a 401(k) must be paid, and the most common way to do that is to extract it via fund expense ratios. The plan may offer a few bargain funds, yet still depend for its economics on having most of the workers wander blindly into higher-fee options.

A survey by benefits consultants Aon Hewitt found that 76% of large employers have workers pick up all the costs of 401(k) administration. Among employers that push all or some of the costs onto employees, a rising minority (now 26%) assess account administration fees, such as $25 per account per year. The rest continue the tradition of burying costs in overpriced funds, a practice that helps youngsters with tiny balances but hurts workers who have been around long enough to accumulate respectable sums.

What to do if you are trapped in a high-cost plan?

Complain. Oracle offers its employees a liberal low-cost brokerage account as well as mutual funds with fees as low as 0.02%. Why can’t we get that?

Use the window. It will almost always save you money once your balance hits six figures.

Counterbalance. Get whatever is cheap, and if that leaves you lopsided, fix the problem using assets outside the plan.

Make a withdrawal. Some plans allow some workers to take out some or all of their money while still employed. The restrictions may relate to your age and/or how much of the money came from company matches. Proceed cautiously, and arrange a custodian-to-custodian transfer so that you don’t have tax problems.

Quit. When you change jobs, you can roll your account into an IRA that has no account administration charge. You can then buy any ETF you want.

Why do brokers have better deals for small IRAs than they do for 401(k) plans with thousands of participants? One reason is the plans have to prove that they are not discriminating against low-paid workers. Individual savers do not.

Click here to access the full article on Forbes. 

Join Our Online Community
Join the Better Way To Retire community and get access to applications, relevant research, groups and blogs. Let us help you Retire Better™
FamilyWealth Social News
Follow Us