10 Fees That Kill Retirement Savings

It isn’t a quick death; rather a long, slow slog that plan participants rarely notice—until it’s too late

The miracle of compounding interest turns small percentages into big returns in retirement plans. But it’s a double-edged sword, and removing small percentages in the form of fees can do serious damage over the long term. SmartMoney’s Robert Powell runs through the worst.

“It's said that what you don't know can't hurt you. Not so,” Powell writes. “What you don't know can cost you, and sometimes cost dearly. Case in point: Advisers and others say there's a host of unknown costs and fees lurking inside your 401(k) plans, IRAs and other such retirement accounts. And often, those fees can make a world of difference in your overall investment returns.”

He notes many Americans are simply unaware of the fees they pay to their plan providers, and points to the startling statistic from AARP “that more than seven in 10 (71%) 401(k) plan participants incorrectly reported that they did not pay any fees.”

However, to borrow John Kerry’s failed 2004 presidential campaign slogan, “Help is on the Way.” Beginning on Jan. 1, 2012, plan sponsors will have to disclose the fees participants pay for their 401(k) plans.

Powell turns to Denise Appleby, CEO and founder of RetirementDictionary.com, for help in rounding up 10 of the fees that can eat away at retirement savings:

1. Account termination fees

2. Account maintenance fees

3. Various account transfer fees

4. Roth conversion fee

5. Federal fund wire fee and overnight delivery fee: “For account owners who are unable to wait for regular delivery and instead choose to have the funds sent via federal fund wire, which usually means same day receipt, a fee might be charged to the IRA, as well as by the bank that receives the funds. For overnight delivery of checks, an express delivery fee might apply,” according to Appleby.

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6. "Special investment" fee: According to Appleby, this fee applies to non-traditional/non-publicly traded investments such as private placements, real estate and certain limited partnerships. She said this fee can range from a few hundred dollars to more than $2,000 per year.

7. "Special investment" set-up fee: As with the special investment fee, this fee also applies to non-traditional investments that are not publicly traded. But unlike the special investment fee, it's not an ongoing fee. Such fees are usually one-time charges applied for reviewing and setting up the investment, Appleby said.

8. Form 990-T filing fee: For accounts that hold non-traditional/non-publicly traded investments, the custodian/trustee may need to file IRS Form 990-T to report unrelated business income. This fee can be up to a few hundred dollars, Powell writes.

9. Loan processing fees: Account owners who take loans from their 401(k)/403(b) or other employer plan account may be charged a loan processing fee, said Appleby.

10. Recordkeeping fee: Powell concludes by noting Appleby said small business owners with solo-K/individual-K plans may be charged a recordkeeping and filing fee of several hundred dollars, if they use the services of a recordkeeper. This is in addition to fees charged by the custodian.

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