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How 401(k) Fees Are Costing You 33% of Your Nest Egg

If you have a 401(k) chances are you're getting ripped off and you don't even know it.

With all of the associated 401(k) fees, the truth is you could be losing as much as 33% of your retirement nest egg to the financial advisors who run your plan.

Typically, these fees are completely buried in your 401(k) statement– and even if you do manage to find out how much they are, the fees won't seem like much at first glance.

But over time, the fees can literally cost you a small fortune.

That's because not only do you lose money by paying the fees in the first place but you also lose out on the returns those fees could have generated had they stayed in your account and were reinvested.

If you haven't paid much attention to these fees, you're not alone: A recent AARP survey found 71% of respondents believed they paid no 401(k) fees.

And those who knew of the fees underestimated them by a long shot.

A study by NerdWallet found more than 90% of Americans "dramatically underestimate the total 401(k) fees the average household will pay over the course of a lifetime."

According to the study:

  • 38.1% thought average 401(k) fees would cost them less than $10,000.
  • 32.8% estimated between $10,000 and $50,000.
  • 13.8% believed the fees would total $50,000 to $100,000.
  • 7.9% thought the fees would amount to $150,000 to $200,000.
  • And 4.1% put the figure at more than $200,000.

The correct response is $150,000 to $200,000 but only 3.3% of respondents picked that amount.

Where Your 401(k) Fees Go

So where do the fees go?…

Administrative fees account for 0.2% to 0.4% annually; asset-management fees, 0.5% to 1%; and fees to market funds, up to 1%. Trading fees vary based on commissions paid to securities brokers and on bid-ask spreads.

When it all is said and done, your retirement plan takes a serious beating…

Join the conversation. Click here to jump to comments…

  1. Arthur Gaither | June 3, 2013

    Your article misses one of the biggest portion of the expenses for 401k plans, which is all of the compliance with regulations from the IRS and DOL. For most small plans with assets under $20 million, plan sponsors pass a portion of them to participants. The work on IRAs is minimal in comparison. Bottom line, if you want the (greater) benefits of a 401k relative to IRAs, there is some cost for them.

    Your article implies that a person can select funds that have no fees, and that does not make sense. In fact, if you check the record, fees in IRAs often are more than fees in 401k plans but writers like you never say that. I wonder why, just looking for the sensational? Expenses for hedge funds are even higher than you state in the article, and many plan sponsors are loading up on them to generate greater returns.

    The DOL requires disclosure on rates of returns and expenses for all 401k plans, so if participants do not know what they are paying, it is because they do not read their statements and disclosures sent by plan sponsors. They are paying for these reports and often do not read or understand them.

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