Fees Can Cut into Retirement
MarketWatch, Tribune-Review/Pittsburgh Tribune-Review
It's said that what you don't know can't hurt you. Not so. What you don't know can cost you, and sometimes cost dearly. Advisers and others say there's a host of unknown costs and fees lurking inside your 401(k) plans, IRAs and other such retirement accounts. And often, those fees can make a world of difference in your overall investment returns.
Now truth be told, many an expert and firm -- the most famous of all being Vanguard -- are beating the drum about how 401(k) fee can be a drag on performance.
Many Americans are simply unaware of the fees they pay to their plan providers. In a recent AARP study, more than seven in ten 401(k) plan participants incorrectly reported that they did not pay any fees, and 6 percent said that they did not know whether or not they pay fees.
Of note, AARP introduced a 401(k) fee calculator on its website, aarp.org, that aims to help investors better understand 401(k) fees and their potential impact.
And come Jan. 1, plan sponsors will have to disclose the fees participants pay for their 401(k) plans.
But there are other lesser-known fees to consider. An adviser with whom I am acquainted recently switched brokerage firms. And as is the custom in that world, he began asking his clients to move their accounts from the old brokerage firm to the new one. Well, as it turns out, those clients who moved their IRA accounts were whacked with two unexpected fees -- one was the account transfer fee and another was the annual maintenance fee.
"Brokerage firms do not like having assets transferred out, so they like to create fees and charges to discourage asset transfers," said Michael J. Sommers of Advanced Tax Strategies PC.
According to Denise Appleby, CEO and founder of RetirementDictionary.com, the fee with which most owners are familiar is the annual maintenance fee, which on average runs $35 to $50. "For an IRA with a large balance, this may seem negligible," she said. "But for a small balance -- for instance, someone just starting an IRA with a $5,000 contribution, a $50 maintenance fee is 1 percent of the account balance. …