If you are looking to retire at some point and don’t have access to a pension plan, odds are, you are utilizing a 401(K) retirement account through your employer. It’s one of the best ways to save for retirement considering the contribution limits and potential for employer matching.
Most participants are unaware that plans even have a cost; let alone what the individual expenses are. Not all plans are built the same and some can have costs that are difficult to determine. Below we discuss some issues to consider and think about when saving through your employer’s 401(K) plan.
Typical fees in a 401(K)
Plan Administration Fees – In order to maintain and run a 401(K) plan, certain recordkeeping and maintenance tasks must be completed. Typically, the plan assesses these fees based on each participants account. While usually not excessive, they can range anywhere from $50 – $100 per participant. They can also be layered as a percentage of the plan assets.
Investment Advisory Fees – In a plan where the individual accounts are actively managed, you may be paying an annual fee based upon your assets under management.
Internal Expense Ratios – This is probably one of the most notable fees that participants overlook. This expense is charged directly by each individual fund you own. The fee can typically range anywhere from 0.05% to 1.5% The good news is, by choosing funds with relatively low expense ratios, you can help control these costs.
Additional points to consider when contributing to your 401(K)
Default Contribution Settings – Plans, which have automatic enrollment features, have dramatically increased the number of employees saving for retirement. But the typical default setting is not enough for most participants. Have you determined what is the appropriate amount to be saving for a comfortable retirement?
Future Tax Bracket – Are you confident your taxable income will be lower during retirement than it is today? Should you be utilizing the Roth option in your 401(K)?
Diversification – Is your portfolio concentrated in company stock? Let’s not forget about Enron or Lehman Brothers.
Rolling in or out of a 401(K) – If you have recently left an old employer and started a new position, you may be considering moving your previous 401(K) plan to your new employer plan or an IRA. Have you considered such factors as available funds/investment options in the new plan, services available in new plan or the level of costs (fees and expenses) mentioned above before making that decision?
In conclusion, knowing the basics of your 401(K) can help lay the groundwork for a successful retirement nest egg. But when considering all the factors that go into successfully planning for retirement, you may not have all the answers to make the right decisions.
That’s where talking with one of our advisors at SC&H Financial Advisors can help. By evaluating what you currently are doing financially, setting goals for the future, and finding ways to achieve those goals, you can put yourself on the path to financial independence.
Advisory Services offered through SC&H Financial Advisors, Inc. SC&H Financial Advisors, Inc. is a wholly owned subsidiary of SC&H Group, Inc.
These materials have been prepared by SC&H Financial Advisors for informational purposes and does not constitute or form part of, and should not be construed as, an offer to sell or issue, a solicitation of any offer to buy, or a recommendation with respect to, any securities and should not be relied upon as investment advice. The views expressed are subject to change. Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. Past performance is no guarantee of future results.
This communication is not intended to provide tax, legal, insurance or other professional advice. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. Any action taken based on information in this communication should be taken only after a detailed review of the specific facts, circumstances of your individual situation and current law. Please contact your advisor for further guidance.
