Whether you are considering enrolling in a new 401(k) plan or you’re assessing your existing plan, researching and understanding fees could make a significant difference in your future retirement. It’s never too late to take control and strengthen your assets.
But what are those fees, exactly? And how can you identify them and ensure your investment vehicles are optimal for your retirement goals? Keep reading so you know what to look for.
Common Employer-Sponsored Plans
First, let’s recap two of the most common employer-sponsored retirement plans. You’ve heard of and might already have a 401(k), which can have Traditional or Roth contributions, depending on the employer:
- A Traditional 401(k) contribution uses pretax dollars from your paycheck, helping lower your adjusted gross income. Many employers match a percentage of your contributions to add to the benefit when you retire.
- A Roth 401(k) contribution allows you to contribute post-tax dollars and withdraw the funds tax-free upon retirement.
Another type of retirement plan you may be familiar with is a 403(b), which operates similarly to a 401(k) but is offered by public schools and certain 501(c)(3) tax-exempt organizations. Also known as a tax-sheltered annuity plan, a 403(b) offers tax benefits and may come with an employer match. They may include both Traditional and Roth contribution options, but it’s up to employers to provide a Roth.
Evaluating 401(k) Plan Fees
While a 401(k) can be a powerful method of creating retirement security, you should be aware of the underlying fees. These can range from 0.5% to 2% of your account value, and high fees can have a tremendous impact on your net worth over a long period of time!
So, where do these fees come from? There are two main sources:
- Fees charged by the Plan service providers, and
- Those associated with the individual funds (i.e., investments).
You can find your 401(k) fees by:
- Checking your 401(k) statement or prospectus for line items or categories such as Total Asset-Based Fees, Total Operating Expenses As a %, and Expense Ratios
- Reviewing the prospectus of the investments you own
- Calling your company or the provider phone number on your statement and simply asking for a summary of the fees
You have a right to know these fees!
What Can You Do if Your Fees are High?
What if you’ve assessed your current employee-sponsored retirement account fees and were surprised to learn the amounts?
If you still work at the company, talk to your benefits people to see if they can strive for improvement. Just don’t stop contributing to your retirement altogether! Make an effort to choose lower-cost funds that meet your specific investment needs.
On the other hand, if you no longer work at the company, evaluate your options, such as the possibility of rolling your 401(k) into an IRA, where you can control expenses better.
Understanding Your 401(k) Plan Costs
Yes, 401(k)s can be a great piece to any portfolio. However, you should know exactly where your money is going—specifically, how much stays with you and how much goes toward plan costs. And remember, your company’s benefit is not the ONLY option! There are various IRAs, investments, and savings alternatives that can help you secure your future.
Would you like a professional to look at your current retirement strategy and options? Contact Carlson Investments to get started today.
Carlson Investments does not provide tax, legal, or accounting advice. This content has been written for informational purposes only. Always consult your individual tax, legal, or financial professionals for advice tailored to your situation.
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