These are Things Six through Ten of the Ten Things Your 401(k) Provider Will Not Tell You courtesy of those brilliant folks over at Smart Money.
6. “…but you still aren’t diversified.”
One interesting tidbit out of the article was the fact that the two most popular holdings in 401(k)s are stable-value funds and company stock – which basically means you’re really conservative and really risky at the same exact time. In fact, they found that one in five 401k participants holds more than 50% of their balance in company stock… Yikes! Stable-value is way too conservative and putting so much into your company stock is a risk too.
7. “If you quit your job, you’ll have to pay to keep your 401(k) here.”
This one was hard to believe because of all the articles out there discussing the benefits of rolling over your 401(k) into a rolleover IRA, a process I just went through. A lot of folks seem to think the paperwork is a hassle but consider the payoff, if you think your options are limited and could cost you money, magnify that by the number of years until retirement and you’re talking serious money. Would you take $200 to go through the process? It’s likely that making the move, if your current options are limited, will result in a difference, in your favor, of at least that much. At the very least, you can roll it into your new job and save yourself the hassle of managing two accounts.
8. “You’d be better off in a Roth 401(k) — too bad your plan doesn’t offer it.”
This is something you can’t really control because the Roth 401(k) is optional, your employer doesn’t have to offer it. However, a Roth 401(k) isn’t necessarily better than a regular 401(k) because the two are two totally different animals. One offers tax deferred investing (regular 401k) and one offers tax free investing (Roth 401k), you should have a good mix of both. Unfortunately, it turns out only 5% of company plans give their participants a choice… which is a travesty.
9. “You want to see some outrageous fees? Try a variable annuity 401(k).”
This only applies to a limited set of folks because a lot of 401k’s don’t offer the opportunity to invest in variable annuities, which is good because its an expensive option. Why? “The insurance company slaps a fee on top of the expense ratio you pay for the mutual funds in the annuity.” Should you be in a variable annuity? Probably not, there are other options out there that are cheaper and possibly better.
10. “Your nest egg could be a whole lot bigger.”
This one is a little bit sensationalistic but it revolves around the fact that people don’t pay attention to their fees and don’t realize how much of a difference a few fractions of a percent in fees makes. “Consider this: Brent Glading of the Glading Group, who used to sell 401(k) plans for Merrill Lynch and Dreyfus but now negotiates better plans for company clients, typically can shave 0.20% to 0.40% off a plan’s expenses. That doesn’t sound like much, but it can translate to $100,000 per employee over 20 to 30 years.” Wow… $100k? That’s huge.
Source: Yahoo Finance