Northwest Arkansas Democrat-Gazette
Knowing terms can help savers
Understanding the 401(k) plan
Many men and women are aware of the importance of retirement planning, and that awareness leads many to enroll in employer-sponsored 401(k) programs.
When perusing the quarterly statements for their 401(k) accounts, men and women may notice they’re being charged certain fees. These fees can add up over time, prompting some investors to wonder just what they are paying for.
The following terms will help men and women better understand any fees associated with their 401(k) accounts.
Individual fees
Individual fees may or may not be charged to an account each quarter, as these fees are typically only instituted when the account holder initiates certain processes, such as taking out a loan on his or her 401(k).
Such actions incur fees, and it’s important that investors know just how much those fees are before taking any actions with regard to their accounts.
Investment fees
Investment fees, sometimes referred to as investment-management fees, tend to be the most expensive fees. These are the fees paid to the company that handles your 401(k) to manage your funds.
Investment fees are typically assessed as a percentage of assets invested, meaning that the more your 401(k) grows, the more you will pay in investment fees. These fees are automatically deducted from your investment returns.
Administration fees
Typically noted as “plan administration fees” on your quarterly statements, administration fees are the costs associated with the day-to-day operation of your 401(k) plan.
Record-keeping, accounting, legal and trustee services are all paid for under the umbrella of administration fees.
Today’s account holders now get more bang for their buck than in years past in regard to administration fees. These fees typically cover electronic access to plan information, daily valuation and online transactions, in addition to the traditional administrative services that have been provided for years.
When considering fees associated with their 401(k) retirement plans, it’s important that investors recognize that these fees will escalate as their investment returns increase. Recognizing that and budgeting for such fees is an important part of retirement planning.