If you are contributing to a 401k or you are eligible to receive employer contributions to a 401k account, it’s important to educate yourself on the types of fees involved. Many 401k plans are subject to several types of fees, including investment management fees, trust custody fees and administrative fees. You can’t avoid paying these because they are taken right out of your account, but you can find ways to offset some of the fees and costs.
If you are participating in an employer-paid 401k plan, your employer will usually absorb the cost of administrative fees because these fees are imposed to manage and maintain your account. Here are some important tips for managing your 401k fees:
1. Monitor fees when you leave your job. If you do end up leaving your company that made contributions to your 401k plan, make sure you know who is responsible for paying the administrative fees going forward. Most companies will not pay for administrative fees when the employee leaves their job, so you will end up paying a little extra in order to maintain your account.
2. Take a close look at investment fees. Investment fees are the biggest component of most 401k plans and are deducted from your investment returns. Your account may be subject to sales charges or sales “loads” and commissions that are paid out based on the number of shares bought and sold on the account. Other investment fees include front-end load and back-end load fees, Rule 12b-1 fees (usually imposed on mutual funds), target date retirement fund fees, collective investment fund fees and charges on variable annuities. Make sure you have a good understanding of what these fees are and consider shopping around for lower rates to get the most return on your investment.
3. Review your account statements thoroughly. All of the fees and a breakdown of all fees on each account will be posted on your account statement. Take a close look at the paperwork you receive in the mail or online so that you are aware of the total fees you are paying each month and year. Remember that there are a number of different factors that can impact fees and expenses of your 401k plan. You could be eligible to receive lower fees if you have more assets. Costs can be subsidized if your 401k plan and other services are offered through a bundled program.
Taking some time to learn about 401k fees can help you make some wise investment decisions. Use these tips to manage your 401k plans better and ensure you are getting the highest possible return from your investments.
