What Fees Might I Be Paying On My 401(k)?
The 401(k) plan that many people entrust their future retirement to is, ultimately, an investment plan. It is virtually impossible not to have to pay some type of fees associated with your 401(k). Since the 401(k) is an important retirement savings tool, it is important to be familiar with the costs associated with contributing to your 401(k).
The fees most typically applied to your 401(k) will fall under one of the following types:
Investment fees are commonly the largest fee component when it comes to 401(k) plans, and are charged for the managing of the plan investments. Investment-related fees are typically charged as a percentage of the invested assets, and are deducted directly from the investment returns. Investment fees typically fall under one of the following:
- Sales charges – transaction costs for buying and selling shares
- Management fees – also known as investment advisory fees, or account maintenance fees, these are charged to the plan for the management of the investment fund. They are typically calculated as a percentage of the assets in the fund, dependent on what the investment manager charges.
- Other fees – typically charged as part of the day-to-day activities involved in the management of the investments.
Administration fees are incurred in the day-to-day operation of the plan, distinct from the fees incurred in the daily management of the plan’s investments, and involve expenses for things such as bookkeeping and accounting, legal services, and the like. Some plans may offer further services, such as telephone voice response services or access to a contact center, seminars, investment advice, planning software and access to plan information, daily valuations, and online transactions, and these are all covered by the plan’s administrative fees.
Individual Service Fees
Individual Service Fees are associated with optional services that may be offered as part of a 401(k) plan. Since these features are optional, the fees involved are only charged to the plan if you undertake specific actions regarding the plan. One such action is taking a loan against your 401(k); if you choose to do so, then you will pay a fee for the loan, in addition to any other regular fees normally paid on the plan.
Having discussed the fees commonly associated with your 401(k) plan, Part 2 goes on to discuss where you can find the plan fees.