401(k) Hidden Fees: What Every Employee Should Know

Are you aware of the potential fees associated with your 401(k) plan?

Do the investments in your 401(k) have high fees? Even a low-cost index fund offered in a 401(k) plan can have a much higher fee than the same index fund in any personal account (e.g., brokerage, IRA, etc.). Why is that?

401(k) plans have historically been a way for the financial industry to extract fees.

Even if you work for a Fortune 500 company, your 401(k) plan has the potential to underserve your investments. While your employer may match your contributions, they may also be charging employees for the cost of administering the 401(k) plan and offering high-fee investments. One Day In July endeavors to help you understand the fees you may be paying. We offer this information to help improve your financial health.

As an employee, it is your right to demand that your employer offer suitable investment options. It is their legal duty to do so, and your retirement hinges on it!

Step 1 - Locate your 401(k) plan documents, including the list of available investments in your plan. This can most often be found online through your 401(k) plan portal.

Step 2 - Review the expense ratios (fees) for the list of available investments. If any investment expense ratios are above 0.25%, be aware that these are often unnecessarily costly and act as a drag on your returns. It is not uncommon to see expense ratios above 1.0%!

Step 3 - Review your 401(k) statement (e.g., monthly, quarterly, or annual). Connect the dots between the fees of all the available investments, as well as the investments you have chosen, to see if there is the opportunity to lower your fees while still having a properly diversified portfolio.

Step 4 - Search for the words “charge” or “fee” throughout your 401(k) statement. You may see terms such as “Asset Charge," "Outside Provider Charge," or "Fees.” Each statement is different, but the underlying importance is that these are often unnecessary costs to you.

• Asset Charge – a summary of the investment fees (total expense ratio fee in $)
• Outside Provider Charge – an extra fee that is charged to you due to the investment funds you have selected
• Administrative Fees – any other potential plan fees that are an expense to employees

At One Day In July, advisors are well-versed in dissecting employer-sponsored retirement plans for fees. We can help you to understand the location and extent of your fees and offer solutions inside your 401(k) plan and across your accounts to optimize your asset allocations while minimizing fees.

Are you a business owner? Read on to learn about the hidden fees every business owner should be aware of.
401(k) Hidden Fees: What every business owner should know