Do You Know How Much Are You Paying in Fees On Your 401k?

#401k #403b #finances #retirement Oct 30, 2017
Do You Know How Much Are You Paying in Fees On Your 401k?

Do you know? Most people are not aware that they need to pay fees on their 401k. In a survey conducted by Woelfel Research, Inc. of Dunn Loring, VA, revealed that "7 out of 10 people (71%) had no idea that they have to pay fees in their 401k.  Also, about three in five (62%) are unaware of how much they are paying in fees."

This is alarming and worrisome as you do want to know how much are you paying in fees.  

What Your Employer Know and What You Know

There is no congruency between the employer version and the participant version. Most likely as a participant what you will see in your disclosures is the following: "Additional administrative fees may apply" or "contact your administrator".  Unfortunately, your administrator is your employer which means that most likely, they will have the employer version of the disclosures.  The financial companies are making these disclosures so difficult to understand that it can be overwhelming. 

Can you find your fees in your paperwork? The reality is that even though the fees are there, they are disclosed in a very confusing way.  When you think about the impact of the fees over time, that is where things can get really spooky. The truth is you can get as many as 17 different fees on your 401k.  

What do all these mean to you? 

It means that you are losing a lot of money or giving it away. Also, you will run out of money faster. The impact those fees will have over time is astonishing. We are talking about thousands that you will lose in fees.  Why?  Because of compounded interest.  Most people don't know that you could pay an exorbitant amount of money due to compounded interest on your retirement account.  We are talking as much as thousands if not hundreds of thousands of dollars.  This will make a difference in your ability to retire or not.  

The other thing is the tax-related expenses.  The advantage of the 401k is that is tax-deferred.  The disadvantage is that it is tax-deferred, which means that in the future when you need the money the most, you have to pay uncle sam what they allowed you to pay later.  And depending on how much you are taking out, that is where your tax bracket will be as well.

What about 403b?

403b are the same and this is a plan for hardworking teachers, public schools employees, and some non-profit organizations. The reason is that you have different providers when you have a 403b and for the most part the fees are higher.  

In the end, there is a huge chunk of money that will to fees and to taxes.  

So what to do regarding your 401k?

First, ask your employer about your 401k fee disclosures. Make sure to ask for the participant version of your 401k disclosures.  Once you have a copy, review them. If you don't understand what you are reading, ask a Financial Advisor.  

Second, I would suggest that if it is offered to you through your employer, contribute to the limit your employer match and no more than that.  Why? Because no matter what, later on, you will still be paying fees and also taxes. So instead, put the rest of the money on other no fees and tax-exempt long-term investments.  Who wants to pay fees and taxes anyway?  I know I don't. 

Third, make sure to consult a Financial Advisor for more information. If you don't know where to go or where to start, please make sure to contact us and I will connect you with the right person.  

Remember that "Financial Education is The Path To Freedom."

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