|Understanding 401(k) plan fees and expenses
If you direct your own 401(k) plan investments, you'll need to consider the investment objectives, the risk and return characteristics and the performance over time of each investment option offered by your plan in order to make sound investment decisions. Fees and expenses are factors that may affect your investment returns and therefore impact your retirement income.
Why should I care about plan fees?
In a 401(k) plan, your account balance will determine the amount of retirement income you will receive from the plan.
While contributions to your account and the earnings on your investments will increase your retirement income, fees and expenses paid by your plan may substantially reduce the balance of your account.
Assume that you're an employee with 35 years until retirement and a current 401(k) account balance of $25,000.
If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $226,556 at retirement, even if there are no further contributions to your account.
If fees and expenses are 1.5 percent, however, your account balance will grow to only $162,846. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.
This article was provided by Ken Weise, an LPL Financial Advisor. He can be reached at 707-584-6690.
Securities offered through LPL Financial. Member FINRA/SIPC. The opinions of this material are for information purposes only.