Are 401k Plan Administrators Robbing Me? |
3 Comments |
Making our way has an interesting article about how 401k companies' fees are eating away his and his wife's gains. I don't think I've run into these problems, but it's difficult to say without the transparency behind the fees.
I can see no reason for the limited fund options that you often find in 401k plans. Also, I'm not sure what the plan administrator really does. After all, couldn't a brokerage handle my 401k like it does my Roth IRA, but with pre-tax dollars and matching?
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I wish I could start my 401k, but I guess until then I will work on my Roth IRA.
The paperwork you need to file with the IRS for a 401K plan is huge. In addition, you have to apply 3 different tests every year just to see if your plan is valid for that year. So guess what most 401k administrators do — they compete for an employer’s business by charging minimal fees at that end and then recoup the money via fund selection (fees and commissions).
A SIMPLE-IRA, SIMPLE-401K is much easier to administer — a single form to submit to the IRS but also has a much lower contribution limit. Vanguard’s fees for their SIMPLE-IRA is $20 per fund per person per year. If you aren’t contributing much, that’s actually a pretty high %. If you contribute the max for a few years, it becomes nearly nothing.
The fees on 401k plans vary a LOT….
larger firms usually have better lower cost plans with
more options. Smaller 401k plans sometimes are VERY expensive.
Great blog!