Are you saving in your job’s 401(k) plan?
Whether you’ve just started, or you’ve been investing for years–you’re taking important steps towards financial security in your golden years.
When it comes to your savings potential, making smart, informed investment decisions can have a real impact on how much your savings can grow. That’s why it’s important to learn about the investment options you have to choose from in your plan and understand all the costs involved with those investments. Nothing in life (or in your 401(k) plan) is free–all services have costs, including investment
Learn about the investment options you have to choose from in your plan and understand the costs involved with those investments–all services have costs even those related to investments through your retirement plan.
In recent years, there’s been a lot of media attention on 401(k) cost and the fees both business owners and their employees are paying for 401(k) investments and recordkeeping services – and for good reason.
Differences in fees as small as 0.1% per year can lower your account balance by thousands of dollars by the time you retire.
For example: Assume an employee with 35 years until retirement has a current 401(k) account balance of $25,000 and earns an average investment return of 7% per year until retirement. Without any additional contributions, here is how 401(k) fees could affect the account balance at retirement.
Total 401(k) Fees
Account balance
0.5%
$227,000
1.5%
$163,000
Department of Labor, A Look at 401(k) Plan Fees
Understanding 401(k) costs and fees
It is important to understand the types of fees that may be assessed in a 401(k) plan and who can pay those fees, so you can make smart choices when it comes to your retirement savings. In fact, the retirement plan rules require the employer offering the plan to keep an eye on plan costs to ensure they are reasonable based on the services received. The employer must pay some 401(k) fees, and some are deducted from employees’ 401(k) accounts. Here are the fees that typically occur in a 401(k) plan and how they can be paid.
Type of Fee
Example
Who Pays
Plan Administration Fees
Fees for day-to-day operation of the plan, including recordkeeping and trustee services
May be paid by employer or from plan’s assets (debited from employees’ accounts)
Investment Fees
Fees for investment management, marketing, and distribution of an investment product, including sales charges or commissions
Deducted directly from investment returns in employees’ accounts
Individual Service Fees
Fees for a transaction or service affecting one employee (e.g., loan, investment advice)
Typically charged to the affected employee’s account, but may be paid by the employer
Settlor Fees
Fees for services primarily benefiting the business (e.g., forming the plan, tax consulting)
Must be paid by employer
