You may know exactly what you pay each month for your mortgage, your car payment, and your cable bill. Heck, you might even have a pretty good idea of what you dole out for cat food (where do they get those appetites?). But do you know what you pay for that workplace retirement plan that you carried over from a previous employer? Many people don’t, according to a new TD Ameritrade survey of 1,000 investors that found just 27% knew how much they’re paying in 401(k) fees.
Somewhat surprisingly, the survey showed a lot of investors don’t even know 401(k) fees exist, with 37% of respondents saying they were unaware. The hard truth is, about 95% of 401(k) participants pay fees, and those fees can put a drag on investment performance and impact your portfolio’s value over time.
If you didn’t know about fees or are unsure what you’re paying, TD Ameritrade has teamed up with FeeX, a fintech pioneer in fee transparency, to give investors access to a free fee analysis tool that delivers quick insight into your former employer's 401(k), 403(b), or other defined-contribution plans.
“We’re trying to provide a lot more transparency into the fees you’re paying in your 401(k),” said Matthew Sadowsky, director of retirement and annuities at TD Ameritrade. “A lot of people think a 401(k) has no fees, and that’s generally wrong.”
How the Tool Works
The tool provides a detailed view of your specific investment holdings and plan services, giving an objective, side-by-side comparison of the fees associated with your old 401(k) account or accounts versus other potential fees in an IRA. (Of course, there are other considerations in making a rollover decision.)
You can link your old 401(k) to the tool by providing your login credentials, or you can manually enter your information. The tool will pull the data about the plan’s administrative fees, the fees associated with each investment inside the IRA, and any other fees.
“It will break that down and automatically compare what you have invested in your 401(k) to an IRA at TD Ameritrade that’s as similar as possible and show you a side-by-side comparison of fees per year and the long-term impact on your asset balance over time,” Sadowsky said.
What Are You Paying For, and Should You Pay Less?
A lot of costs can be associated with 401(k) plans, and it’s worth knowing what they are. Not only do the funds inside a 401(k) plan charge ongoing fees, but there’s also an overall cost to administer the plan. Many employers pass some, or all, of those costs on to plan participants. It can be onerous to read through all the disclosure information and documentation to understand the fees, but just because it’s hard to decipher doesn’t mean those fees don’t exist.
Not all 401(k) accounts are created the same, and investors should know exactly what they're paying. This new tool can help investors become more aware and empowered about their accounts and take advantage of their 401(k)s to the fullest.
“What value are you getting for your cost?” Sadowsky asked. “If you’re paying more, make sure you’re getting value for the extra charge.”
For instance, some people might be happy paying higher fees for their retirement plan if they feel their investments might grow faster or if the extra cost provides access to a better fund manager.
On the other hand, passive investors who use index funds should consider focusing on how well their funds match the indexes they’re tracking, and make sure they’re not paying high fees simply to match an index. That isn’t necessarily cost effective.
By comparing retirement accounts in an apples-to-apples sense, the tool can provide transparency into plan fees in an accessible, customized way.
“Our solution will enable you to get transparency and break down the fees in your plan that are specific to your situation,” Sadowsky said.