Money Matters

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Explaining 401(k) fees

Many men and women are aware of the importance of retirement planning, and that awareness leads many to enroll in employer-sponsored 401(k) programs. When perusing their quarterly statements, men and women may notice they're being charged certain fees, which can add up over time,  prompting some investors to wonder just what they are paying for.

• Individual fees: Individual fees may or may not be charged each quarter, as these fees are typically only instituted when the account holder initiates certain processes, such as taking out a loan on his or her 401(k). Such actions incur fees, and it's important that investors know just how much those fees are before taking any actions with regard to their accounts.

• Investment fees: Investment fees, sometimes referred to as investment management fees, tend to be the most expensive fees. These are the fees you are paying the company who handles your 401(k) to manage your funds, and they typically are assessed as a percentage of assets invested, meaning the more your 401(k) grows, the more you will pay in investment fees. These fees are automatically deducted from your investment returns.

• Administration fees: Typically noted as plan administration fees on your quarterly statements, administration fees are the costs associated with the day-to-day operation of your plan. Record keeping, accounting, legal and trustee services are all paid for under the umbrella of administration fees. Account holders now get more bang for their bucks with regard to administration fees, which typically cover electronic access to plan information, daily valuation and online transactions in addition to the services that have been provided for years.

When considering fees associated with their 401(k) retirement plans, it's important that investors recognize these fees will escalate as their investment returns increase. Recognizing that and budgeting for such fees is an important part of retirement planning.