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الأربعاء، 30 أغسطس 2017

This is Why You Need to Find Out How Much You’re Paying in 401(k) Fees

People often forget the money in their 401(k) accounts is theirs.

It might sound silly at first, but it’s a valid point that Ash Toumayants, a financial adviser and founder of Strong Tower Associates, made.

Until a few months ago, I’d neglected my 401(k). I let the money sneakily funnel from my paycheck. Out of sight, out of mind.

But that’s probably the worst mindset ever.

Toumayants told me, “This is your money, and you need to stay on top of it. You have every right to understand what’s going on with it. It’s coming out of your paycheck. The minute it hits your account, it’s yours, so you should have some control over what happens.”

He wasn’t lecturing directly to me, by the way. This was a general statement — answering my question about why it’s important to check in on your 401(k).

Most obviously, you’ll want to make sure you have the right balance of stocks and bonds. Then, you’ll want to check for any sly fees. These, in the long run, can cost you thousands in savings.

What’s the Deal With 401(k) Fees?

As much as 62% of folks are simply unaware of how much they’re paying in 401(k) fees, according to a 2011 AARP survey.

A more recent CNBC article hit me with a shouty headline: “What you don’t know about 401(k) fees can cost you plenty.”

Toumayants explained, yes, 401(k) accounts have “unfortunate inherent fees.”

That’s because these accounts face more government regulations than other types of accounts. (Consider: The SIMPLE IRA.)

You might see three main types of fees, according to the U.S. Department of Labor:

  1. Plan administration fees pay for day-to-day operations like recordkeeping, accounting and legal services.
  2. Then you have investment fees, which pay managers to keep those investments flowing.
  3. Finally, individual service fees are based on any particular account features you might opt in for.

These are the three basic fees. There are others, depending on your plan, including sales charges and investment advisory fees.

So Who Pays These 401(k) Fees?

It depends.

Retirement plan providers, like a Fidelity advisor, don’t want to absorb these fees. After all, they’re also trying to make a buck or two.

So the employer or its employees pay them.

That decision, however, is up to your employer.

Toumayants says, to be fair, many employers don’t know what typical protocol is, so they’ll ask the advisor what to do.

An advisor might tell the employer it’s traditionally the employee who pays these fees. This keeps the employer happier — and more likely to stick with its advisor — because they’re paying less.

How 401(k) Fees Can Add Up Real Fast

If these fees have been left for you to handle, they’ll likely funnel directly from your 401(k) contributions on a quarterly basis, Toumayants explains.

Although these fees might not look like a ton at first, they’ll add up, the U.S. Department of Labor warns.

“Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7% and fees and expenses reduce your average returns by 0.5%, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5%, however, your account balance will grow to only $163,000. The 1% difference in fees and expenses would reduce your account balance at retirement by 28%.”

Check in on the 401(k) Fees You’re (Likely) Paying

Let’s get back to my naive self, who wasn’t checking on my 401(k)…  

I had no idea where to even find out which fees I was paying.

I searched for the latest 401(k) update through my email and logged in, but it didn’t outline anything. Toumayants said this isn’t abnormal. Fees aren’t always broken down as a line item. It’s not like, “Here’s a fee; here’s a fee; here’s a fee.”

It’s more like, “Hey, we took $30 out.”

To get that specific line item, you’ll need to check with your employer. By law, they must disclose fee information to you.

If you’re not sure if $30 is a lot, try getting a free “health” report for your account from a robo-advisor. Per my co-worker’s recommendation, I tried Blooom.

I was able to get a free analysis of how my account was faring — and to see what fees I was paying.

Actually, my fees weren’t so bad off. It was my mix of stocks and bonds and my diversification that was off… but that’s another story.

How to Use Blooom to Check the Health of Your 401(k)

You’ll log in with your 401(k) plan information, so go ahead and your username and password ready.

Blooom walks you through your account and immediately offers advice. Is your balance of stocks and bonds good? Are you taking too much risk for your age

And fees. It’ll tell you whether your fees are too high, so at least you know where you stand.

If you want to move forward and let Blooom optimize your account, you can sign up for $10 a month, but there’s no pressure.

Really, I just felt a whole lot better knowing I wasn’t stuck paying a ton of fees and crippling my ability to retire at a decent age — because, you know, the mountains are calling

Carson Kohler (@CarsonKohler) is a junior writer at The Penny Hoarder.

This was originally published on The Penny Hoarder, one of the largest personal finance websites. We help millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. In 2016, Inc. 500 ranked The Penny Hoarder as the No. 1 fastest-growing private media company in the U.S.



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