When many of us think of promoting a frugal lifestyle, we think about things like cutting back on the grocery bill and looking for DIY projects. However, many of us overlook the investment fees we might be paying.
Now, as a new year approaches, it’s a good time to take a look at how you might be paying more than you should be on your investments. One of the first places to look is your 401(k) plan.
How Much Is Your Retirement Account Costing You?
You want to set aside money for retirement, preparing yourself for the future. However, it’s important to note that you should do so with an eye toward what it’s costing you. Investing fees, especially those charged by company plans, cost more than just the yearly fee or other fees. When you overpay your fees, you also miss out on the compound interest you could have been earning on the money that is no longer in your account.
While you can’t avoid fees completely, you can reduce what you pay. The first step is to get educated about what your plan is costing you. You can use a tool like the BrightScope Ratings directory to see how your plan stacks up, and what you are likely paying in fees. In some cases, you might find that you are paying too much.
This might be because you have chosen expensive funds to hold in your account. If that is the case, talk to your HR representative about investing in lower-cost funds. In some cases, the plan administration fees are higher than they should be. There isn’t much you can do in this case, other than ask if there is a way to switch administrators or find some other arrangement.
You might not even be able to remedy your investment choice if there aren’t enough low-cost options in the plan. When you feel as though you are stuck paying high costs, it’s time to take action.
What You Can Do About High 401(k) Fees
If you find that you are paying too much in fees with your employer’s plan, it’s time to take action. You can ask your employer to change things up so that you are able to access lower cost options. If this doesn’t work, though, it’s possible for you to take your money elsewhere. If you are receiving a 401(k) match, it might be worth it to continue contributing the required amount to get your maximum match. However, any amount over that might be more profitably invested in an IRA that you can control. Many IRAs have very low costs, and it makes sense to choose one of these accounts if your 401(k) isn’t meeting your needs.
You can even roll your money over from a 401(k) to an IRA if you are concerned about ongoing costs. Just make sure you understand the process before you begin, and that you are aware of possible tax implications.
There is no reason to pay more in 401(k) fees than necessary. Make an effort to find out what you’re paying, and then see if you can create a situation in which you pay less.
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