Changing jobs? How to protect your 401(k) from hidden fees
A U.S. Government Accountability Office study reported that 41% of American workers are unaware that 401(k) plans carry fees. Yet these fees can cost a workers thousands (and thousands) of dollars throughout their working years, leaving them with smaller retirement accounts than expected.
It's common to lose track of fees when deciding whether to roll your existing 401(k) over or leave it where it is. However, it's essential to know how much you're paying in 401(k) fees and the effect they'll have on your retirement account.
Here's what you need to know about 401(k) fees when changing jobs, where to find them, and how to control them. If you're not changing jobs, these tips can help you take control of an existing 401(k) and the amount you're paying out in fees.
401(k) fees add up
If you're changing jobs, it's possible that your old employer paid your retirement account fees on your behalf while you worked there. However, once you move on from the job, it's unlikely that the company will continue to cover those fees. If that's the case, your old retirement account may be exposed to fees you know nothing about.
Let's say one of the fees you're suddenly responsible for paying is a $4.55 monthly non-employee account maintenance fee. You could lose $17,905 in fees throughout your career.
More: Americans believe this is the No. 1 obstacle to saving for retirement
Get a copy of your 401(k) fee schedule
Whether it's an old account managed by a former employer or an account you're opening with your new employer, you need to know exactly where to find fee information. A fee schedule is typically buried deep in the 401(k) plan document, making it difficult to find. Knowing what to look for is the key.
Your employer must provide documents detailing how much you're paying in fees. The fee-specific document is often called the 401(a)(5) fee disclosure, although it may have another name. If you don't have a copy somewhere at home, you can typically find it on your plan's website or through your company's human resources department.
What to look for
401(k) plans label their fees with a variety of names. Here are some of the most common names:
As you review the Participant Fee Disclosure, note any terms that suggest a fee.
How to know if you're paying too much
All 401(k) plans charge fees, and you can't avoid paying them. However, there are steps you can take to keep your costs to a minimum.
401(k) fees usually range from 0.5% to 2% or more of plan assets annually. If the fees associated with your retirement account are more than 0.5%, you're probably paying too much. The chunk of money going to fees each year represents money you could have kept in your retirement account and allowed to grow.
What you can do to control 401(k) fees
While you won't find a prospectus that covers your 401(k) as a whole, you will find individual prospectuses for each fund in your 401(k). A prospectus is a document that gives you detailed information about each investment, including objectives, expected outcomes, risks, and fees. Most plan administrators provide these documents online. If not, contact your 401(k) administrator or HR department.
You may not be able to eliminate fees entirely, but here's what you can do to reduce them:
401(k) fees may not actually be "hidden," but they can definitely be a challenge to find. Knowing how to find them could be your superpower, your way of redirecting money once spent on fees toward investments.
The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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