It’s Your Money: How to Find Out How Much You’re Paying in Retirement Plan Fees

If you’re like an estimated 4 out of 10 people, you’re not sure how much your retirement plan costs. And it makes sense — chances are, your day-to-day life is chock-full of activities that keep you hopping, and you don’t have a lot of spare time available to dig into retirement plan details. If that’s the case, you may not be aware of how much money you’re losing annually to hidden retirement plan fees.

What’s a fair expense ratio?

The total amount you pay in fees is called the “expense ratio,” and that’s the precise figure you’re looking for. While opinions may differ regarding what a “fair” ratio is, here are the typical expense ratios for different fund types:

Data source: Carry.com.

Step-by-step plan for identifying fees

When it’s time to check how much you’re paying, these steps will get you where you need to go:

Step 1: Gather your plan documents

• You may have kept all quarterly or annual plan statements for your 401(k) or other retirement account, but if not, log in to your plan’s online site to find the statements.
• If you have a hard copy of the plan, look for a section called “Annual Fee Disclosure” or “Participant Fee Disclosure.” If you’re looking at your plan’s online site, the section you’re looking for should be under “Plan Documents,” “Disclosures,” or “Investment Information.”

Step 2: Identify the costs for each investment in the plan

• Check the expense ratio for each fund in your account and note it (for example, 0.12% or 0.55%).
• If you use a managed portfolio or advice service, confirm whether you’re paying additional management or “wrap” fees. Wrap fees are generally based on a percentage of your account’s value.

Image source: Getty Images.

Step 3: Review extra fees

• Identify plan and individual charges by looking for recordkeeping or administrative fees. These expenses may be a flat dollar amount per year or a percentage of your assets.
• Review transaction-based fees, such as brokerage account fees, distribution or rollover fees, and loan initiation and maintenance fees.

Step 4: Take action, if needed

In most situations, fees will be under 1% (also listed as 100 basis points). If fees are higher than that, ask the plan administrator to explain why that’s the case. Also, explore other options to lower your overall cost ratio.

For example, if your plan is through your employer, you can contribute just enough to the account to meet your company’s match and invest the rest in an IRA or a health savings account (HSA). If you leave your employer, roll your entire account into a lower-fee retirement plan.

In the event you’ve been hands-off with your retirement account, now is the time to take greater control by diving into the investment options available through your plan and selecting low-cost options, such as ETFs.

Now is a good time to ensure that fees don’t chip away at the retirement account you’re working so hard to build.

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