When was the last time you looked at all the fees associated with your 401(k)? How much are they costing you? And, what, exactly, are you paying for? This primer will help you understand where those 401(k) fees are going.
There are several types of 401(k) fees you need to know about: administration fees, investment fees and service fees.
Many dentists save for retirement through a 401(k) program, but most don’t understand the fees associated with this type of retirement vehicle, or why they must pay them. High fees can severely limit your ability to reach your investment goals, so it’s important to understand the different types of fees you may be exposed to.
Your 401(k) plan will require that you keep certain records, keep your accounting practices in order, and make sure you comply with all legal requirements. It’s also possible for your plan to offer additional services, like telephone voice-response systems, educational seminars, retirement planning software, and online transactions.
Sometimes, administration services will be covered by your investment fees. Most of these services can also be provided by a third-party. Either way, the more services you have in your 401(k) plan, the higher your administrative fees typically are.
Administrative fees can be charged against the assets of your plan, be allocated from among a portion of each account balance included within your plan, or charged as a flat-fee against each account included in your plan.
Managing your investments typically incurs the highest fees associated with your 401(k) plan. Today, most 401(k) plans offer a combination of actively and passively managed mutual funds. Investment fees can lower the overall performance of an individual fund.
Investment fees can include commissions related to the buying and selling of shares, investment advisory fees which are related to the ongoing management of assets of the 401(k), and other fees.
Your charge for investment management and other investment-related services is usually a set percentage of the assets you choose to invest. They are deducted directly from your investment returns, so it’s important to pay particular attention to them. The amount of money you can collect from your 401(k) will be determined after these fees have already been deducted.
Optional features of your 401(k) plan can be subjected to service fees in addition to your overall administrative fees. If you have more than one person in your 401(k) plan, these service fees are only charged to the individual accounts making use of a particular plan feature.
If you have questions about the fees associated with your 401(k) plan, take the time to review your plan’s summary plan description and the plan’s annual report, both of which contain information on what the plan provides, how it operates, and information on the plan’s assets, liabilities, income, expenses, and fees incurred. You can also contact your 401(k) plan administrator for assistance with questions about your fees and other expenses incurred to your plan.