Friday Reading: 401k Fees

By Harry Sit

401k Fees are Not the Problem by Frank at Bad Money Advice

I wanted to comment on the buzz about the average 401k participants paying $155,000 in 401k fees over their lifetime. Frank said exactly what I wanted to say. As much as I dislike 401k fees, I agree they are not the problem. People prioritizing other things over contributing to their 401k is the problem. Always remember it’s their life. They get to decide how to live it.

*****

Should Asset Allocation Change with Age? by Mike at Oblivious Investor

I think so, because a black-and-white success-or-failure for retirement withdrawals doesn’t tell the whole story. The variance also makes a big difference. When an asset allocation fails at a withdrawal rate, how much does it fail by? When it succeeds, what is the range of outcomes?

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Stocks: 4 reasons we feel worse than we should by Allan Roth at CBS MoneyWatch

Great article by financial advisor Allan Roth explaining why we feel worse about the stock market than we should. International stocks did poorly; they are now back to the July 2009 level. US stocks are not bad at all; they are actually quite a bit higher than the lows we saw last year.

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IRS to Modify FSA Use-It-or-Lose-It Rule? by Nickel at FiveCentNickel.com

Nobody likes the use-it-or-lose-it rule but the IRS is concerned about people using a FSA as a tax shelter. I think it makes sense to have a cumulative cap, similar to how companies manage vacation accruals. Vacation days carry over from year to year but once you reach the limit you will have to start using them.

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The Lovely Low Taxes of Early Retirement by Mr Money Mustache

Nice reality check on taxes retirees pay. Remember to use Traditional accounts when you work. Convert to Roth when you don’t.

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President’s Budget Proposals Take Aim At Popular IDGT Estate Planning Strategy by Michael Kitces at Nerd’s Eye View

I don’t know how an Intentionally Defective Grantor Trust works but I would agree it should be killed. The average Joes don’t have any use of it anyway. While we are at it, fill the other holes as well, like the stretch IRA and step-up in basis.

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Why Does The Mortgage-Interest Tax Deduction Still Exist? by Alex Blumberg at NPR

I don’t know either, especially at rates this low. It’s a good time to get rid of it.

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Posted on June 15, 2012 under News. Keywords: , , , .

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5 Comments on Friday Reading: 401k Fees

  1. J on June 15, 2012
     

    401(k)s are not a common benefit in my industry. I just took the plunge on taxable investing last night with the purchase of VGTSX in a taxable account, and I set up automatic contributions timed to match my paycheck. This, plus maxing out annual I-Bond and IRA contributions, will be my substitute for a 401(k).

  2. Bucky on June 15, 2012
     

    Wait, what 401k fees? Are they just talking about expense ratios for the funds that you own in a 401K? I wouldn’t really consider those as “401k fees”, since you would have to pay the same expense ratios in a regular taxable account. I would just call those fund fees. To me, a “401k fee” is an account fee just for having a 401k account open, which I don’t think 401k generally charge.

  3. Leigh on June 15, 2012
     

    @J
    Can you split your paycheck? If so, you could direct deposit money into your Vanguard taxable account. That’s what I’m doing for money that I want to invest every month timed with my paycheck. Vanguard even lets you split your direct deposit up into different funds, though I plan on just using VGTSX like you.

  4. TFB on June 15, 2012
     

    Bucky – They are talking about the fund expense ratios plus an estimated “trading fee” (0.95%/year for stock funds, 0.5%/year for bond funds) which a fund incurs when its mere act of buying raises the price of whatever it buys. Even index funds can’t avoid this “trading fee” because index funds must still go to the market and buy stuff.

  5. J on June 15, 2012
     

    @Leigh – my workplace does not offer direct deposit at this time. If it did, I’d probably use the split-check method that you recommend.

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