Uncovering Your Retirement Plan’s Hidden Costs

73 million Americans use a defined contribution plans for retirement savings and no one knows
their annual costs. As head of the House committee on Labor and Education, Representative
George Miller exposed in Congressional hearings hidden costs of defined contribution plans-
401(K) and 403(B). The Department of Labor recently announced that retirement plan
providers must spell out all individual and general expenses deducted from an employee’s
retirement account. These regulations will not take effect until January 2012 so it is incumbent
that the new Congress does nothing to hinder these common-sense regulations.

An Elder Law Journal report estimated annual expenses scandalously approach 3%. When
a burglar climbs in a window and steals your television, they call it a felony but defined
contribution plan providers get a free pass. Plans from smaller employers often have higher
fees and many employers have rescinded or scaled back the employer contribution. A
Traditional IRA or Roth IRA could be a more cost-effective tool. Traditional IRA contributions
are tax-deferred like 401(K) elective deferrals. However, Roth IRA contributions provide no up-
front tax advantage but distributions are tax-free. Consult with a tax professional and make
sure you understand the tax consequences.

Also consider saving with an after-tax account. Using IRAs or after-tax accounts will require
personal discipline. It’s your money, if you want to give away, knock yourself out.

About the author

Buz Livingston, CFP®

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