Tag Archives: 401(k)

How Much Does Your 401(k) Cost You?

Many workers around the country participate in their company’s 401(k) plan.  While these are great vehicles to save money toward retirement, they are often loaded with high expenses and hidden fees.  This artice in the Wall Street Journal reviews what kind of information to look at when selecting mutual funds in a 401(k) plan and what to look out for.  While not necessarily groundbreaking news, the author mentions to be on the lookout for high expense ratios, 12b-1 fees, and short term trading costs.

Here’s an excerpt:

You may not realize it, but you could be paying thousands of dollars a year in fees on your 401(k) retirement account, hidden expenses that affect how your savings will grow. The government is now trying to expose those charges so you can make better investment decisions.

Under regulations proposed by the Department of Labor, 401(k) plans every year will have to disclose each investment’s annual expense ratio — the percentage that goes to management and other costs — along with more detailed performance data. In addition, any administrative or other fees deducted from your account will have to be spelled out. New regulations may go into effect as soon as Jan. 1.

Matt / Google+

401(k) Rollover

I am a 29 year old that recently switched jobs. I was wondering what I should do with my former employer’s 401(k)? Should I roll over into an IRA, and what are the benefits of rolling over?
- William, Pennsylvania

In nearly every circumstance I would recommend rolling over an old 401(k) into an individual retirement account (IRA). The reason being is because you have a lot more control over where you invest your money. Most 401(k)’s limit the number of investment options a plan participant can put their money in. Also, the mutual funds that many 401(k) plans offer are often loaded with high expense ratios and other hidden costs. As an individual investor, you have practically an unlimited amount of options. Unless your former employer’s 401(k) offers you attractive options that are not available to you outside of the plan, I would recommend rolling it over into an IRA at Vanguard (www.vanguard.com) or Fidelity (www.fidelity.com). Vanguard offers low-cost index mutual funds that outperform many of its actively managed peers. Fidelity offers a variety of mutual funds including similar low-cost index fund and it also has a brokerage where an investor can purchase individual stocks. As an added bonus, many mutual fund companies will handle the 401(k) rollover for you at no charge.

Matt / Google+

Contribute to a 401(k) Plan?

I am a 23 year old who recently switched jobs and I have yet to enroll in my new employer’s 401(k) plan. The reason behind this is that I have a negative return with my former employer’s 401(k), and it seems as though our economy is headed for a recession. My question to you is what kind of assurance would you provide to concerned investors like myself concerning the stability of the market? Is now a good time to invest despite continuous losses? Dosh, Delaware.

Dosh,
As a 23 year old, you have quite a few years to go before you will need your retirement money. I would not worry about the current climate in the stock market due to the fact that you have many years of compound growth ahead of you. Despite the fact that the market may dip even lower than its current levels, it is important to continually invest. Although the prices of equities are lower than they were six months ago, you need to take the viewpoint that shares are “on sale”. Your 401(k) contributions today will be able to buy more mutual fund shares now than they were six months ago. Although in the near term you may see some volatility, over the long term you should be rewarded for your patience.

Matt / Google+