BEST 401K Financial Advisor (Hidden Fees)
BEST 401K Financial Advisor (Hidden Fees)
We all know we’re supposed to be investing into tax-advantaged retirement accounts — for the good of our financial futures.
The foundation of your financial future is supposed to be your 401(k) or 403(b).
And, for many people, these employer-sponsored accounts are a great option that allows them to save and prepare for the future.
BUT Investing in a 401(k) or 403(b) is not always the best option.
And this is because, as the employee, you are limited to 401(k) and 403(b) funds that your employer chooses.
I’m sure your employer is great, but it’s possible they have chosen funds that have very high fees or that tend to be mismanaged.
It’s in your hands to figure this out.
401k Hidden Fees You DO Not Know
Your 401(k) portfolio may be bleeding cash internally, and you may not even know it.
In general, 401(k) plans have two basic operational components: investment options and recordkeeping or administration.
Hidden fees in 401(k) plans have been written about extensively over the past few years.
And numerous lawsuits have been filed against 401(k) plan sponsors over excessive fees within their plans.
In 2012, the Department of Labor issued rules mandating the disclosure of all fees to 401(k) plan participants.
However, the lawsuits and new disclosure rules have done very little to prevent the hidden fee practice known as revenue sharing.
Revenue sharing is basically legal kickbacks from mutual fund companies to retirement plan record keepers.
Under most revenue sharing arrangements, mutual fund companies pay a percentage of the fund’s expense ratio to retirement plan record keepers to cover administrative expenses.
The problem is, if you have mutual funds in your 401(k) that pay revenue sharing, you are effectively paying an asset-based fee for your plan’s recordkeeping and administration.
And as 401(k)s go, it’s never a good idea to pay an asset-based fee for non-investment management services.
You see, under a revenue sharing scheme, every time you make a contribution to your plan, the cost of sending out your quarterly statements goes up.
That is akin to hiring a plumber to fix a leaky gasket, but paying him based on the amount of water that flows through the pipe. No one would think that’s a good deal, except for the plumber!
How to Stop the 401K Hidden Fees
The good news is your 401(k)’s condition does not have to be terminal. There are potentially two things you can do right now to stop the hemorrhaging and keep more of your 401(k) balance from being siphoned away:
- Use index funds.
Most index funds do not share revenue. But be careful, there are indeed expensive versions of index funds. If the S&P 500 index fund in your plan has an expense ratio of more than 0.05%, you’re getting ripped off. Also, most 401(k) plans do not offer an extensive lineup of index funds needed to build a well-diversified portfolio.
- Use a brokerage window.
If your plan offers a brokerage window, which is the ability to trade offerings of a brokerage house such as TD Ameritrade, Schwab or Fidelity through your 401(k), you likely have access to virtually unlimited investment options including low-cost, exchange traded funds (ETFs). And your 401(k) plan’s brokerage window may even offer dozens of ETFs that can be bought with no trading commissions, depending on the sponsor. (We use a number of commission-free ETFs to build individual 401(k) portfolios via a brokerage window for our clients. We absolutely love them.)
- Keep an eye on old 410k plans Do your homework whenever you leave your job or change jobs, and consider moving your 401(k) plan. Most people leave their 401(k)’s behind, which can be a big mistake.
Try to find lower-cost investment options outside of your former employer’s plan.
You possibly can roll your 401(k) over to an IRA and invest in index funds, which may bear lower fees than the actively managed options in your former employer’s plan.
Also, some employers charge ex-employees an administrative fee for the privilege of staying in the company’s 401(k) plan, so it may make sense for you to roll your 401(k) balance into an individual retirement account or a new employer’s plan if you’re being assessed such a fee.
- Check for in-house options— One increasingly popular 401(k) fee-saving is to utilize an “In-Service Withdrawal” feature.
This feature is not always available for 401(k) plan participants, but when it is, you can really save money.
Some plans allow you to withdraw 20% per year to roll into a self-directed or rollover IRA. This would allow you to choose exchange-traded funds or stock portfolios that don’t carry some of the intrinsic costs and fees within a 401(k) plan. This feature isn’t typically advertised.
Consult with your human resources or benefits manager on any plan withdrawal options.
BEST 401K Financial Advisor (401K Hidden Fees)
You don’t have to be a math whiz to see that over time, the compounding effect of asset-based revenue sharing can unnecessarily put your retirement portfolio in critical condition.
If you have a 401(k) balance of $50,000 or more, act now before more of your hard-earned money bleeds out.
Mintco Financial Fee Only 401K Financial Advisor in Tampa Bay Area
We are advocates, not salespeople. We never stop learning. We listen to our clients. We welcome change. We believe in the power of integrity and honesty.
Our inspiration to create a client-driven financial planning service was born from our experience in a predominantly sales-driven financial industry.
We have seen the good, the bad, and the ugly of the business and created Mintco Financial to support a new direction by placing clients in the center of innovation and attention.
Our mission is to constantly improve the way financial advice is given so that people will make better decisions to improve their quality of life and sense of financial security.
We have built a team of professionals with specialized knowledge who work together to collectively serve our clients by communicating effectively, making sure changes take place, progress is made, and our clients are happy.
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