I’ve warned investors for years about the fees hiding in their 401(k) plans. Often employees don’t have much say over how their 401(k) savings are invested. Some of the investments in their plans could be loaded with fees that eat away at their returns. A study reported on by Andrew Osterland at CNBC shows that most retirees don’t even know what’s lurking in their plans. He writes:
Are you paying 12b-1 fees in your 401(k) plan? Are you charged front- or back-end loads on the funds you pick for the account? What’s the size of the sub-transfer agency fee paid to the third-party service provider for your plan?
Relax, you’re not alone if you can’t answer those questions.
Studies show that most participants in 401(k) plans have no idea that the plans cost anything, let alone what the individual expenses are. However, when it comes to fees in your retirement savings account, what you don’t know can definitely hurt you.
“It’s death by a thousand cuts,” said Rick Meigs, founder and president of the 401khelpcenter.com, a website devoted to issues and information regarding 401(k) plans. “Obviously, if you’re paying 3 percent vs. 1 percent compounded over 25 years, it’s a ton of money.
“But even 25 or 50 basis points (0.25 percent or 0.50 percent) extra adds up over time.”
There are two ways you can protect yourself from this. The first is to thoroughly understand your 401(k) plan and to make the best choices with the options you’re given. The next is to rollover that plan whenever it becomes an option for you. I’ve written more about why you should rollover your 401(k) plan here.
E.J. Smith - Your Survival Guy
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