Do You Know How Much Your 401(k) Is Costing You?

It’s an important question to ask, because many workers don’t and it may be costing them dearly. A survey conducted by AARP in 2011 indicated that 71% of those surveyed didn’t believe they paid any fees whatsoever on their 401(k), but they were wrong. Not only that. But the average annual expense ratio for about 52 million holders of a 401(k) was 0.64% of the total account. A number of funds, particularly low-cost index funds, come in significantly lower and therein lies the rub. You see it’s your employer that creates the plan and selects the fund management partners. Tom Zgainer, founder of America’s Best 401(k), an investment firm that audits company retirement plans says, “It’s not really that fees are hidden…it’s more that they are hiding in plain sight.”

Typically, 401(k) plans have a quite limited number of investment options. So it behooves an employee to carefully examine those options and associated fees. Expense points add up quickly. Here’s an example: If you contribute $10,000 a year (whether yours alone or yours and combination of matching employer funds) for a period of thirty years and you average a 7% return annually, with a 0.5% annual account expense, then at the end of thirty years, your account would be worth $920,000. But if it’s costing you 1.0% in annual fees, you’d have less than $840,000 after thirty years and at 2.0% you’d have saved less than $700,000. It seems crazy, but that’s what that type of compounding interest does over time.

You can research the gain/cost of each investment element offered, which is always highly advisable. A reasonable flat fee would be the best choice, but seldom offered. All of the funds offered could have expensive administrative fees that are determined at the plan level, which are completely out of the control of individual employees. Zgainer continued saying, “Whether it’s high-expense ratio funds or additional asset-based fees layered on, that goes across every participant in the plan. … There’s just nothing you can do about it.” If that’s the case and especially if your employer isn’t matching contributions in some way, you might be better off opening a low-cost and self-directed traditional IRA.

If you leave an employer for any reason, your 401(k) funds are immediately available to rollover into a new 401(k) with a new employer, transfer into a traditional IRA, or take as a cash distribution by paying all applicable taxes and penalties. Taking a distribution prior to reaching 59½ years of age carries an automatic 10% federal penalty, on top of applicable taxes. A Gold IRA has static custodial charges of $175 per year on accounts valued under $100,000 or $225 per year for those over. Make the best of your options. Call the experts at American Bullion for professional assistance at (800) GOLD IRA. That’s (800) 465-3472. Call today!