Investing in a 401k is critical to financial success after one’s employed life ends. Getting the most value of your dollar is key, and having an employer give generous contribution matches is also of the essence. But what if the plan you have access to isn’t all that great?
In light of a regulation put into place last year by the Department of Labor, employers now have to disclose the amount of fees employees are paying to participate in the plan. Fees are largely tied to the type of investments and shares available to invest in through the plan, and while sometimes better options are available, other times, there aren’t.
Surveys done so far have found that nearly half of Americans are unaware fees even exist, with 53 percent taking note of the costs of investing in their plan. Of that group only 14 percent choose to act to lower their investment costs for their 401k, representing 7 percent of 401k participants overall.
With that in mind, if you’re looking to join the frugal minority in bettering your 401k situation, we’ve done a little perusing to help out in case your plan is anything less than stellar.
Here are four things to do if your 401k fees are out of control.
Donald Jones, a director at Fiduciary Doctors in Phoenix, Arizona, told
Fox Business about the difference in share classes and how these can impact the amount paid in a 401k. There are several kinds of R share investment options, ranging from R1 shares to R4. Jones noted that while R shares are typically retirement investments with little in the way of load or sales commission, lower number R shares, 1-3, tend to have other built in costs, while R4′s have less expenses. The difference between R1 and R4 can be 1 percent over a working life time, which, if it had been saved, equates to about $200,000 at the time of retirement, according to Craig Morningstar, chief operating officer at Dynamic Wealth Advisors in Scottsdale, Arizona.
2.) You Were Always More Attractive Anyway, IRA
If you happen to be stuck with a lame 401k and can’t get your employer to jump into a better plan, there’s always the reasonable strategy of maxing out either an IRA account or a Roth IRA account, which lets you forgo deducting taxes now in order to enjoy tax free retirement income in the future. One strategy is to put just as much in the 401k account as your employer will match — then aim to max a monthly contribution to an IRA, which for a Roth, is $5,500 in 2013.
If your plan is lackluster, and costing you more in fees than it should, it may be time to sit your employer down and have a little chat. Morningstar told Fox that employees should “gather documentation and find other employees that have similar concerns. Provide documentation to the employer and ask to be involved.” Another industry analyst, David Littell, said that most employers will want to make it better, seeing as it’s a waste of their money and resources if employees aren’t utilizing the plan they are offering.
As an extreme measure, suing an employer may, in extraordinary circumstances, be the only way to get them to provide a plan that’s not sucking up all your money in fees. As each 401k plan is required to have a fiduciary, and most fiduciaries end up being plan sponsors, these people are legally required to act in the best care of those in the plan. Questions regarding whether fees are reasonable are fair game in a lawsuit. Morningstar says that when people sue, simply put, “They win.”