I pay $2,164 a year in retirement account fees – one month’s worth of contributions – should I leave one of the plans for an IRA instead?

I am 44 years old, married and have a small family. I have been working for a government job for 15 years. I get home about $ 41,000 a year ($ 3,416.00 a month) after all the deductions and savings.

I contribute $ 2,053 a month to three employer accounts (defined contribution, supplementary annuity, and 401 deferred compensation plan.) I just started looking at my fees and was a little surprised. Annual fees are $ 2,164 a year, more than a month of contributions.I have been investing outside of my employer-sponsored accounts with low-cost diversified domestic ETFs.The only business account I can changing a lot is the $ 600 month I’m adding to my deferred compensation.Plan 401 (a).

Is it worth the tax benefits in retirement to continue paying the management fees for this plan or just add that to what I’m investing in low cost ETFs? Are there other ways to negotiate rates with employer-sponsored retirement plans?


Savings for 12 months by investing for 11 months

I’ll see: We want to retire in a few years and save $ 1 million. Do I have to transfer my money to a Roth and pay my $ 200,000 mortgage while I’m there?

Dear savings,

It’s great to be looking at your retirement account rates – they can really eat up your nest egg if not managed properly.

I can’t delve into your personal situation, especially since I don’t have in front of me the specifics of your retirement plans, but you ask an interesting question, and I know others have asked as well. Does it ever make sense to choose an external account, such as an IRA or a taxable brokerage account, where you have more control over your portfolio, over an employer-sponsored account, such as a 401 (k)?

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You mentioned that you have three different business accounts (a gift in itself, honestly!) And the only thing you can do something about is the one you contribute $ 600 a month. My first question for you is: would stopping contributing $ 600 to this plan make a big difference in the $ 2,164 figure you calculated? Try to be very detailed about your account details and review what each plan charges. You may find that the 401 (a) rates aren’t really that bad, and removing your $ 600 contribution won’t cause a dramatic change in the amount you pay in commissions each year.

All retirement plans, whether private or government, have their own specific rules, so it’s hard to tell if something can really change or not. Retirement offers from larger companies tend to have lower rates than those from smaller companies. For example, 401 (k) plans with 1,000 participants and $ 50 million in assets had average commissions of 0.90% in 2021, compared to smaller plans with 100 participants and $ 5 million in assets, which had a average of 1.20%, according to 401k. Averages Book, which tracks and compares rates for these accounts. Employees cannot negotiate rates with their employer. Quota decisions are made between employers and companies offering retirement plans.

There may be investment options within these plans that you can modify, but this is something you will need to discuss with your plan sponsor. It is likely that someone from HR can help you understand this information, or from the investment firm that hosts these accounts, by sending you important plan documents that explain what’s available, when changes are allowed, and how to navigate. by the system.

See the MarketWatch column “Retirement Hacks” for useful tips for your own retirement savings trip

I’ll say, saving on another investment account in addition to these plans is wonderful, but there are many reasons why you might want to keep that $ 600 contribution in a retirement account sponsored by the employer. 401 (a) allows employer contributions, including matching employee contributions, so it’s essentially like “free” money when granted. There is no match for your employer with a brokerage account or your typical IRA.

I’m not sure where to invest in these ETFs, but if it were in an IRA, keep in mind that the amount you contribute would be limited. The maximum annual contribution for an IRA is $ 6,000 for people under the age of 50. But your $ 600 a month contribution is $ 7,200 a year, which means you’re closing $ 1,200 in contributions if you’re in an IRA.

However, there are many tax advantages to IRAs. You may not be eligible for tax deductions with a traditional IRA due to your participation in employer-sponsored accounts, but you can contribute to those accounts before taxes, which is great if you’re in a business group. lower taxes than you expect. retirement. With a Roth IRA, you would now pay tax on your contributions and reap the benefits of tax-free retirement withdrawals, a benefit if you expect to be at a lower tax level during retirement (or believe that the government will increase tax rates). when you get there).

Regardless, investing in an additional account when you already participate in company-sponsored plans will help you a lot in old age.

As you make your analysis, I suggest that you also review how your ETFs really are. Commissions are important, but so is the performance and suitability of investments in your portfolios. Don’t worry if your wallet isn’t doing particularly well right now; to say that the stock market is volatile in recent months would be an understatement, but check your investment options to make sure they fit properly. your goals and needs, and that work best for you in the long run.

Readers: Do you have any suggestions for this reader? Add them to the comments below.

Do you have any questions about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

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