The majority of American workers are familiar with how a defined contribution pension account works. This is more commonly referred to as a 401(k) plan. As an employee who will make contributions to this plan out of his or her paycheck and in many cases, this is matched by the employer. This is one of the most popular savings vehicles to help you accomplish retirement goals. However, most people do not realize that there are often fees associated with 401(k) plans.
Although fees have to be disclosed to plan participants, a recent study conducted by AARP found that up to 80% of 401(k) plan participants did not know the amount that they were paying out in fees. These fees are collected on a monthly basis for asset, investment, audit and administrative purposes. The expense ratios will depend on how the fund is managed.
There are other things to know about a 401(k) plan such as the listing in your will about how you intend these benefits to be passed on to someone else are not going to be applied. You will need to file individual beneficiary designations with your 401(k) plan manager to ensure that your wishes are carried out when something happens to you.
When you’re evaluating your 401(k) plan, it’s a good time to sit down and review your estate planning documents as well. Most people find it easy to accomplish these annual reviews all at once. If you spot hidden fees and want to consider other options for your retirement, an annual review is very beneficial. Since life changes over the course of a year, ensure that your beneficiary designations and other estate planning tools also protect your best interests.
