OMAHA, Neb.--(BUSINESS WIRE)--An eye-opening new TD Ameritrade survey of 1,000 investors shows that 96 percent of people know how much they pay each month for streaming media services like Netflix, Hulu and Spotify and yet just 27 percent know how much they’re paying in fees on their 401(k) accounts. The vast majority either may mistakenly believe they don’t pay any 401(k) fees (37 percent), don’t know if their plan has fees (22 percent), or don’t know how to determine the fees (14 percent). The hard truth? 401(k) plans aren’t free; about 95 percent of 401(k) participants are paying administrative and other fees in addition to fund fees.1
“While often overlooked, fees can put a drag on investment performance and impact portfolio value over the long term,” says Matthew Sadowsky, director of retirement and annuities at TD Ameritrade. Not only do the funds inside of a 401(k) plan charge ongoing fees, but there is also an overall cost to administer the plan. Many employers pass some, or all, of those costs on to plan participants. Sadowsky adds, “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.”
Since 401(k)s are a cornerstone of American retirement savings, with their tax advantages and other benefits, employees should continue to take advantage of 401(k)s to their fullest while becoming more aware and empowered about their accounts. That’s why TD Ameritrade has teamed with FeeX, Inc., a fintech pioneer in fee transparency, to help retirement savers quickly analyze their 401(k) fees.
“This is a first,” Sadowsky says. “We believe TD Ameritrade is the first financial services company to provide 401(k) owners with such transparency into their plan fees, and in such an accessible, customized way.”
Clients and non-clients alike now have access to a free 401(k) fee analyzer tool powered by FeeX to get quick insight into their 401(k), 403(b) or other defined contribution plans. The tool analyzes overarching administration fees, as well as individual fees for the mutual funds within the plan, so that individuals are looking at a detailed view of their specific investment holdings and plan services fees. Users can then clearly see an objective, side-by-side comparison of the fees associated with their 401(k) account(s) versus other potential fees in a IRA. There of course are other important considerations in making a rollover decision.
TD Ameritrade’s survey found that nearly three-quarters of 401(k) owners left an account behind at an old job and ended up choosing one of three paths:
Roll it over to a qualified account (new employer plan or IRA)
Nearly one-third of Americans (31 percent) with an old 401(k) account roll it into a new employer’s plan while slightly more (34 percent) choose an IRA. When deciding between the two, it’s important to consider fees and investment options. The common belief is that all 401(k) funds have institutional pricing that's cheaper than those available to individual investors, which is not always the case. Oftentimes, similar securities with comparable holdings can be found in the public markets at a lower fee. Relative to 401(k)s, IRAs can often offer a wider variety of investments, tools and other resources such as branch locations. And, if more than one 401(k) is involved, consolidating multiple accounts into a single IRA can make it easier to monitor and manage progress toward retirement goals.
Leave it be
The 22 percent of 401(k) owners who keep the account with their original employer may want to compare the fees and features of their plans versus those of an IRA.
Cash it out
Thirteen percent of 401(k) owners cash out their 401(k) accounts when leaving a job. And yet, financial professionals often say this should be a last resort for people not yet of retirement age, as investors can incur tax consequences including penalties, and sabotage years of retirement savings when cashing out before they are eligible for the tax advantages involved with this type of investing. Investors should take time to educate themselves and fully understand the implications if considering this option.
About TD Ameritrade Holding Corporation
TD Ameritrade provides investing services and education to more than 11 million client accounts totaling more than $1 trillion in assets, and custodial services to more than 6,000 registered investment advisors. We are a leader in U.S. retail trading, executing more than 700,000 trades per day for our clients, nearly a quarter of which come from mobile devices. We have a proud history of innovation, dating back to our start in 1975, and today our team of 10,000-strong is committed to carrying it forward. Together, we are leveraging the latest in cutting edge technologies and one-on-one client care to transform lives, and investing, for the better. Learn more by visiting TD Ameritrade’s newsroom at www.amtd.com, or read our stories at Fresh Accounts.
TD Ameritrade and FeeX are separate and unaffiliated companies that are not responsible for each other's services or policies. Neither TD Ameritrade nor FeeX is acting in the capacity of an advisor or making recommendations to TD Ameritrade clients or potential clients in connection with the 401(k) fee analyzer tool. The tool is for self-directed investors, for educational purposes only.
Before rolling over a 401(k) to an IRA, be sure to consider your other choices, including keeping it the former employer’s plan, rolling it into a 401(k) at a new employer, or cashing out the account value (keeping in mind that taking a lump sum distribution can have adverse tax consequences). Whatever you decide to do, be sure to consult with your tax advisor.
Source: TD Ameritrade Holding Corporation
1) FeeX 2016 proprietary data assembled from 401(k) fee disclosures: An evaluation of 81.4 million 401(k) plan participants determined that 77.5 million, or about 95 percent pay participant fees.