A recent study shows that more than 90 percent of investors do NOT know how much their 401(k) costs. You can often reduce the cost of your retirement investments.
According to a NerdWallet study, roughly 92 percent of Americans have no idea what they're paying in 401(k) fees. Many also underestimate their fees and wind up losing thousands of dollars in retirement savings. Of course, some of the expenses in your plan are set by your employer, but there are things you can do to reduce the bite that comes out of your account.
Look for Lower Cost Funds
Most 401(k) plans have plenty of choices for you to consider. Find the lowest cost funds in your plan. Often your plan will offer index funds and, typically, they are less expensive than comparable actively managed funds. Your plan custodian will have information on costs. Look in the summary plan description, the 401(k) annual report and your custodian's website for details on fund expenses. The information must be disclosed, by law. But, it's up to you, or your financial planner, to sort out the low-cost options inside the plan.
This might be one reason to have your fee-only, fiduciary financial planner review your 401(k) and help set up a mix of investment funds that fit your goals and save on expenses. These advisors are committed to acting as your advocate at all times. And since you pay for your advisor's help through a transparent fee, she has no incentive to favor any fund more than another. And, fee-only, fiduciary financial planners routinely offer this service to their clients.
Consider Moving Out of the Plan
If you are better than 55 years of age, some plans allow you to move money out of the 401(k) without separating from the company. And, if you no longer work there, you can ALWAYS move your money out of the plan. Leaving the plan can save you money for a couple reasons.
First, you are more likely to have more, lower-cost investment choices in an IRA than in the 401(k) plan. Especially if you employer is a typical, smaller company. Those plans tend to use more mutual funds.
Second, the plan administration and plan advisory fees from the 401(k) go away. Sometimes these costs will be more than 1 percent on top of fund expenses.
Third, you can have your IRA more easily managed together with your Roth IRAs and your taxable investment account. Your fee-only fiduciary financial planner can make sure you own the smart investments for your needs.
Remember, your 401(k) is a company-sponsored benefit, but it's a key to YOUR financial future. Do NOT ignore this important tool and DO NOT pay too much for your retirement savings.
Would you like to know if you can pay less for your 401(k)? Contact my office at firstname.lastname@example.org. I am always happy to help folks do the smart thing with retirement savings. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.