(Bloomberg Business) — As the economy improves, more Americans are changing jobs. And that means more workers leaving behind 401(k) retirement plans.
Those stranded 401(k)s create a dilemma for workers. It can be almost impossible to know whether you’re better off leaving money in an old 401(k), rolling it into a new employer’s 401(k), or rolling it over into your own individual retirement account (IRA). The problem is that figuring out 401(k) fees — the key determining factor — requires diving into oceans of fine print. Fees come in dozens of configurations, from flat annual charges to asset-based ones, and it can be exceedingly difficult to deduce whether you’re getting the best deal.
Now, an Israeli startup named FeeX says it has a solution: an automated service that calculates the fees in your old 401(k)s and recommends whether a rollover (and which kind) makes sense. Users create an account and connect it to their old and new 401(k) plans, then FeeX calculates how much, if anything, a rollover would save.
Sometimes, FeeX data show, your money should stay sitting in an old 401(k). Large employers, in particular, often offer excellent, low-cost plans. The fees for Google’s 401(k) plan are as low as 0.07 percent per year. Other times, an IRA rollover will get you the exact same mutual funds at half the price. A Vanguard Group target-date fund can cost 0.43 percent per year in a 401(k), but 0.18 percent in an IRA.
Eliminating unnecessary fees is FeeX’s mission, says Chief Executive Officer Yoav Zurel. But the goal isn’t lower fees at all costs. “I’m not saying fees should not exist,” he says. “People need to be paid on the job they do. The only thing I want is clarity.”
Cheap 401(k)s or mutual funds usually outperform expensive ones, but not always. Occasionally, those fees pay for advice or investing expertise that prove worthwhile. A novice investor may want someone to talk to about their retirement account. An experienced mutual fund manager is likeliest to add value in tricky parts of the markets, like emerging-market stocks.