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When selecting a retirement plan to invest in, you need to consider your objective, the risks associated with different funds and how those funds perform over the long term. But you also need to keep track of the fees charged by your mutual fund manager—even seemingly inconsequential percentages can have a huge impact on your bottom line.

The main fee is your expense ratio, which is a percentage of your assets deducted each fiscal year. These fees for 401(k) plans will vary depending on your employer and the funds you select: Funds offered by larger employers typically have lower fees (below one percent of the account balance) because there are more assets being managed overall, while smaller firms may offer funds with fees up to two percent to make up for the lower asset level. And while a two percent fee may not seem like much, it can eat up half of your earnings over 35 years.

Ian Ayres, a Yale law professor who studies 401(k) fees, says not to invest in any funds that charge an expense ratio over one percent per year. Instead, look for the funds that charge less than 0.5 percent per year, but know that even 10 basis points (or 0.1 percent) can make a big difference in your retirement savings. “Reforms that reduce fees incurred by investors by only ten basis points on average would save more than $4.4 billion annually, and these savings compound over the course of investors’ careers,” Ayres writes. (Another thing to note: Ayres finds that excessive fees are more harmful than lack of diversification.)


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Here are some of the fees to be aware of:

  • 12b-1 Fees: These fees are for advertising, marketing and distribution expenses, which include commissions for financial professionals who recommend the funds. (This is a a good time for a reminder to read up on the Fiduciary Rule.)
  • Administrative Fees: These fees cover the costs of account statements and educational materials, as well as access to advisors and customer service representatives.
  • Investment or Management Fees: These are charged to manage your investments, and will probably be the largest fees you pay. They will be smaller for passively-managed index funds than actively-managed funds.
  • Loads: These fees are charged for buying or selling shares of a fund, and are paid to intermediaries. There are front-end loads, which are charged upfront when you buy shares, and back-end loads, which are charged when you see shares. These are not included in your expense ratio.
  • Service Charges: These will vary by plan sponsors, but an example is the fee associated with taking a loan from your 401(k), should the need arise. They’re not included in your expense ratio.

If you don’t know what your fund charges, you can find out in a fee table in the fund’s prospectus, under the heading “Shareholder Fees,” and you can find other indirect expenses in your fund’s prospectus under the heading “Annual Fund Operating Expenses.” Your corporate plan sponsor must disclose this information to you on a quarterly basis, thanks to a 2012 rule from the Department of Labor.

You maybe able to look up your employer’s plan options on BrightScope or individual fund information on Kiplinger’s site, and you can learn about more fees on the Securities and Exchange Commission’s website. And while setting aside time to figure out what fees you’re being charged isn’t the most entertaining way to spend an evening, it could save you a ton of money.



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