The Veil is Lifted on 401 (k) Fees

September 5, 2012 3 Comments »
The Veil is Lifted on 401 (k) Fees

Now you’ll know exactly how much your 401 (k) account is costing you. Last month, a new federal rule took affect requiring 401 (k) providers to disclose their complete fee structure to consumers. A study found the average medium income household with two income-earners pays almost $155,000 over their lifetime in 401 (k) fees. This shrinks your investment returns by nearly a third, according to CNN Money.

However, a shocking 30 percent of Schwab survey respondents said they had no idea they were paying 401 (k) fees. The new rule will help you understand what your plan is really costing you.

What to Expect 

As of August 30, new disclosures began going out to mailboxes, showing the fees associated with your account. Although information about these fees has always been available, it wasn’t user friendly or provided without asking. With the new law, information is provided in a consolidated format, at least once annually.

Administrative Fees 

Your 401 (k) plan comes equipped with a variety of fees, which are also called “reductions.” You pay fees for record keeping and administrative costs. Plus, if you’ve taken out a loan against your 401 (k) account, you’ll pay additional fees. And, the smaller your 401(k) plan, the higher your potential costs.

Investment and Fee Calculation Disclosure 

In addition to administrative fees, you’ll be able to review your account’s investment fees. Investment fees show as a percentage of the fund’s total value, per $1,000. Like mutual funds, these fees aren’t deducted from your balance, however, will diminish the return of your fund.

The new statement will also show exactly how fees are calculated and assessed. Plus, it shows who is paying these fees. In some cases, it might not be you. Employers can elect to pay 401 (k) fees for their employees.

Potential Costs 

Fees will vary; depending on your investment type, which is typically passive or aggressive. Passive investments have lower fees. That’s because these types of accounts don’t require an investment manager to select stocks. However, active investments require portfolio managers to make trades, resulting in higher fees.

Expect to pay about 0.5% of your total assets per quarter for passive investments. For active investments, you’ll pay about 1%, according to CNN Money.

Promotions and Bonuses Available with New IRA Accounts:

Institution
Accounts
Bonuses and Promotions Available
Fees/Comments
Go To Offer
Traditional IRA, Roth IRA, SEP IRA Trade Free for 60 Days plus get up to $600 in cash No fees for transferring or setting up IRA. $9.99 fee per trade after 60 day promotional period. Go
Any new IRA account or 401k $395 in free trades Lowest brokerage fee on the market at $3.95 per trade. Zero maintenance, set-up or annual fees. Go
Traditional IRA, Roth IRA, SEP IRA Between $100 – $600 in bonuses depending on IRA value. $7.99 per trade. Zero maintenance, set-up or annual fees. Go
Traditional IRA, Roth IRA, SEP IRA No cash bonuses. Average annual earnings for members at 9.64%. Peer-to-Peer banking with over $400 million in loans and savings. Average returns of 9.50% APY with 28% tax rate. LendingClub.com
Traditional IRA, Roth IRA, SEP IRA Between $100 – $600 in bonuses depending on IRA value. 150 free trades $8.95 per trade after 150 free trades are up. No maintenance or annual fees. Schwab.com

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  • Wengel

    These fees are a joke. Even if you have an “aggressive” portfolio that demands more attention, they already have programs that monitor these things and make moves based upon triggers that are already hardwired into the program’s algorithm. It shouldn’t take more fees for zero human effort.

  • donna

    About time. We’ve lost over 40% of our 401k value in the last 6 years.

  • Matt Blake

    Finally investors can be informed about the expenses associated with their 401k plan. It should become very clear to individuals that one of the wisest moves they can make is to rollover their 401k into a self directed IRA when they change employers.