5 Sneaky 401K Fees to Avoid

Most 401k plans are managed accounts that invest primarily in mutual funds. Unfortunately, mutual funds have hefty fees associated with them, some of which can add up to a significant chunk of change over the decades that you plan to keep your retirement account.

Here are 5 sneaky 401k fees to avoid.

1. Redemption Fees

If you’re thinking about making some trades in your 401k account, be sure that you know about redemption fees. Those are the fees that you pay when you don’t keep your shares for a specific length of time.

Remember, mutual funds are meant for long-term investors. That’s why companies that manage those funds often penalize people who pop in and out of the funds just to make a quick buck. They don’t want their long-term investors to suffer because of other short-term traders.

Keep in mind that not every mutual fund has a redemption fee. If yours doesn’t, you can trade a little more frequently. However, financial professionals generally discourage heavy trading in your retirement account.

2. Borrowing Fees

You might be interested in borrowing from your 401k to pay for something very expensive such as a down payment on a house. Keep in mind that there could be a fee associated with processing the loan request from your retirement account.

If you want to avoid paying that fee, then find another way to get the money besides taking a loan from your 401k account. Instead, consider a Roth IRA withdrawal.

3. Custodial Fees

You’ll find that your mutual fund company likely offers index funds. Those are funds that basically mimic any one of the major stock market indexes, like the S&P 500, Dow Jones Industrial Average, or Russell 2000.

Index funds are excellent investment options for retirement because the broader markets tend to rise over the decades. Even better, though, they almost always have lower fees than actively managed funds.

Almost all mutual funds are so thoroughly diversified that they move in tandem with the stock market averages. So why not save yourself some money in fees and just invest in a fund that’s supposed to move with the market?

4. Hidden Fees

Go over your statements thoroughly to make sure that you’re not getting socked with ridiculous “hidden” fees. If you see something that looks amiss, give the customer service department at your mutual fund company a call and ask what’s going on.

5. High Management Fees

When your company gives you information about your 401k, you’ll usually have a variety of mutual funds that you can choose from. Be sure to compare the fees for each fund so that you get an idea of what you’ll be spending if you invest in it for the long haul. You might find that a great fund with an excellent track record is offered with a lower free structure than some of the other options.

You’ve worked hard for your retirement money. Now, make sure that you keep as much of it as possible by minimizing the fees associated with your 401k account.