Here’s a look at some of the types of fees you might pay in addition to sales charges that may apply:
Administrative Fees. Your plan administrator takes care of or arranges for the recordkeeping, accounting and legal services required by your 401(k). But those services come with a price tag. The fees that you pay vary, depending on your plan’s provider, the size of the plan and the services it offers participants. Generally, the larger your plan, the lower the rate at which fees are charged—either because they are being collected from more people or because your employer has more negotiating power, or both. In addition, some employers cover some or all of the administrative fees.
Investment Fees. Investment management fees, which you pay on every investment in your portfolio, generally account for the largest portion of the total. These asset-based fees may range from as low as 0.02 percent to 2.5 percent or higher. One complicating factor is that you may pay at different rates within a single 401(k) plan based on the investment choices you make. For example, fees on bond funds tend to be lower than on actively managed stock funds, and fees on index funds, if offered by your plan, are usually lower still. On the other hand, that doesn’t mean you’ll want to avoid all stock funds.
Some investment charges may apply only in specific circumstances. If you know what they are, such as fees for moving money out of a fixed-income investment, you are able to make more informed choices about how to invest and when to make a change. Incurring fees for moving money from one investment fund to another may also make you think twice about constant reallocation.
If your plan offers a brokerage window that permits you to trade securities within your 401(k), remember that you’ll pay a broker’s commission for each trade you execute.
Loan Fees. Unlike investment fees, which all participants pay, some fees are charged on specific services, such as loans. Loan fees can vary from a small percentage of the amount you borrow to a rather substantial percentage of the total value of what you’d be eligible to borrow. It pays to check what costs would apply before you commit yourself.
Your fund prospectus will include a fee table, where you can find more information on the charges you'll have to pay.
|
