Ever heard of the 401(k) fees? If not, you’re in the right place as we’ll be explaining everything you need to know about this retirement investment. When it comes to retirement, 401(k) fees are one of the most popular ways to save money through benefits like tax deferral and employer matching. However, these are considered expenses and do come with a price, which is why it’s important to take time and properly research on what expenses to take up as they can defer from plan to plan. In general, investment fees take up the largest component, so it’s advisable to look for a low-cost option in order to reduce the overall cost. To know more about the 401(k) fees for your retirement plan, continue reading.
Types of 401(k) Fees
401(k) fees can be categorized into three types:
- Administrative Fees
As its name suggests, administrative fees cover the logistical details of the retirement plan. Services such as customer services representatives, record-keeping materials, and online transactions are all classified under administrative fees. Other expenses like investment advice and the retirement planning software used by representatives also incur a cost.
- Investment Fees
In the 401(k) retirement plan, the largest fee you’ll be paying is investments. The component not only includes the investment themselves, but also management services, sales charges, and other logistical features of running the investments. The investment fees typically calculate the percentage of assets the individual has and is known as an “expense ratio”. Let’s say the “expense ratio” is 1%, every $10,000 invested will incur a cost of $100 per year. If you’re not as financially confident, we recommend investing in a lower amount.
- Individual Service Fees
Individual service fees only apply when you sign up for other plans that are not required. One of the most common optional plans is a plan loan, which comes with an origination fee that costs around $50 to $75.
Payment of 401(k) Fees
When it comes to paying the cost of the 401(k) fees, some of the fees are paid by employers, but the majority of the cost is covered by you. To be honest, it really depends on what type of fee you have and how the particular plan manages it. Generally, there are two factors to consider when paying the 401(k) retirement plan. One is Administrative fees, while the other is Investment Management fees. Administrative fees tend to be covered by the employers, or otherwise called “plan sponsors”, whereas Investment Management fees are handled by the individual.
What’s The Difference Between 401(k) Fees And IRA Fees?
If your employer is sponsoring your 401(k) plan, do note that you might not be able to transition to an IRA. IRA is a solely individual account, so there’s no official “plan” and administrative fees. However, there will be an annual account fee depending on which company you decide to open at. Some companies request a $20 annual fee, which will be automatically waived if you’ve reached the minimum asset requirement.
