Though the name sounds technical, a 401(k) is simply a type of retirement account set up by an employer that allows an employee to make tax-deferred contributions. 401(k) accounts have two large tax advantages: 1) The contributions are not taxed until the plan participant begins making withdrawals and 2) The contributions lower the plan participant's amount of adjusted income, lowering their tax liability.
Many employers also offer to match a percentage of income that an employee contributes to a 401(k). The combination of tax savings, free money from employers, and the fact that contributions are withdrawn automatically, makes a 401(k) an excellent investment vehicle.
If you are like many Americans, it is likely you have recently seen your 401(k) decrease in value. What you may not be aware of is that many 401(k) plans have very high fees charged within them. Why is this important? Well, 1% extra fees can actually, over time, just about cut in half the amount of money you would have in your 401(k) by retirement. Use these links below to discover more about the fees being charged in your 401(k) plan and learn what you can do about them.
- http://www.freeerisa.com/default.asp This tools allows you to search for free fee data for 401(k) plans. You are required to register, but registration data is free. This is a great way to get information about the fees, some hidden, that your 401(k) plan is charging you
- http://www.kiplinger.com/magazine/archives/2008/05/hidden-401k-fees.html?kipad_id=2?kipad_id=2 talks about 401(k) expenses, how you can calculate those your plan is charging, and what you can do if these fees are too high.
- http://www.dol.gov/ebsa/publications/401k_employee.html is a great guide from the Department of Labor that discusses 401(k) fees in easy-to-understand language.