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Is Your 401(k) Eating Your Returns with Fees?

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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.

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.