3 Ways to Boost your 401(k) Savings
You could easily shop for bargain-basement fees in your individual retirement account (IRA) or small-company plan. There’s plenty of competition and it is hard not to save.
Here are three easy ways to save:
1) Invest in Low-Cost Index Funds. They are passively managed, meaning they are not trading and generating big fees. Every retirement plan should offer them as staples. Actively managed funds, in contrast, typically charge more, but deliver lower returns than index funds.
2) Avoid 12b-1 Fees. These are expenses that fund managers charge you for marketing their funds. I’ve always seen them as a pox on returns. They do nothing for you. See if your funds charge them. Avoid them if they do.
“The 12b-1 fee might not seem exorbitant, particularly for the services of a good fund adviser, but even a small unnecessary fee can do damage to your overall savings.
It’s also worth noting that if your adviser is compensated with 12b-1 fees, they’re incentivized to build a high-fee fund lineup, often with lots of actively managed funds.”
3) Benchmark Your Fees. Most savers are loath to this because it involves homework. But you can save a fortune by seeing which funds are the cheapest to own.
How do you know if you’re paying too much? You won’t know until you do a comparison shop by benchmarking.
In your 401(k) or 403(b), though, getting fees down is a matter of working with your plan administrator. Since they control the plan, they must find vendors with rock-bottom rates.