401k fees fidelity

401k fees fidelity DEFAULT

Self-employed 401(k)

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No account fees or minimums to open Fidelity retail IRA accounts. Expenses charged by investments (e.g., funds, managed accounts, and certain HSAs), and commissions, interest charges, and other expenses for transactions, may still apply. See Fidelity.com/commissions for further details.

Note that the total of salary deferrals and profit sharing contributions cannot exceed $57,000 ($63,500 if age SO or older) for 2020 and $58,000 ($64,500 if age 50 or older) for 2021.

2. Maximum compensation on which contributions can be based is $285,000 for 2020 and $290,000 for 2021. If you are self-employed, compensation means earned income.

3. With catch-up provisions, individuals 50 and older may defer up to $26,000 for 2020 and 2021, subject to the combined deferral and employer contribution limit.

4. The change in the RMD age requirement from 70½ to 72 only applies to individuals who turn 70½ on or after January 1, 2020. Please speak with your tax advisor regarding the impact of this change on future RMDs.

For further information on your specific situation, consult with your tax advisor.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

Sours: https://www.fidelity.com/retirement-ira/small-business/self-employed-401k/overview

What Exactly Are All These Fidelity 401k Fees?

My employer used to run its 401k plan through Fidelity, one of the more popular brokerage services—and 401k providers—on the market. When I logged onto the Fidelity NetBenefits website and took a look at my account, I had only one question: What exactly are all these Fidelity 401k fees?

According to Investopedia, a study by TD Ameritrade revealed that only 27% of investors knew how much they paid in 401k fees, while 37% didn’t realize they paid fees at all. I was determined to step out of the 73% who weren’t sure exactly where their hard-earned money was going. Similar to my own personal Roth IRA account with Edward Jones, fees were taking a bigger bite out of my investments than I first realized.

Where can I find my Fidelity 401k fees?

Whether due to my own ineptitude, or through deliberate camouflaging on Fidelity’s part, I could not for the life of me figure out what these additional fees were. The info that I sought is information that your 401(k) provider must supply you—yet I could not locate and account for these mysterious fees. A few days after giving up on Fidelity’s website, I happened to receive an email with Fidelity’s annual prospectus disclosure and viola, a CTRL F later and I finally uncovered the fees that were eating up nearly one percent of my account on an annual basis. You can find this required disclosure information under the Plan Information and Documents tab on your account.

Assuming I’m not the only one who sucks at navigating an unfamiliar financial services website, I wanted to spell out those fees in somewhat plain English. For those who don’t have a 401k plan through Fidelity, this information should still prove somewhat valuable, as it allows you to compare the fees in your own plan to another provider. I had a next-to-impossible time finding my own 401k provider’s fees, never mind search for those of competing plans.  

Retirement account fees are like the rust eating away at your engine. You may not notice the small leak that they cause, but over time the amount of oil spilled is significant. I don’t know shit about cars so I hope that analogy had the desired effect. Fees aside, if you don’t participate in your company’s 401k plan, I would certainly recommend doing so in order to receive any company match, and would likely recommend it even if you don’t receive a match.  

Should You Contribute To Your 401k Without A Company Match?

Now, let’s take a look at the Fidelity 401k fees that I’m paying.

Expense Ratio – Individual fund fees that you’ll deal with regardless of you 401k provider

My Cost: 0.015%, or $15 of $100,000 portfolio – (this is the only fee that I was aware of)

Most of us know that we’ll pick from a list of several funds within our 401k plan to invest our money, and these funds come with a fee known as an expense ratio, ranging from .001% to a full 1.0%. Of course, I’d recommend a low-cost fund such as one that tracks the S&P 500 index, often on the low end of the fee spectrum. Even a target date retirement fund, which will likely cost an extra tenth of a percent but will rebalance your investments automatically, is a great low-cost option. Actively managed mutual funds will cost you anywhere from half a percent to more than one percent, and you don’t often get what you pay for. When I first began investing in my 401k, I assumed this was the only fee I had to concern myself with. Turns out, like usual, I was wrong.

It’s important to keep expense ratios low, but even more so when your account is bleeding fees worth an additional percent of your account balance. In my case, I invested in the Fidelity S&P 500 fund, FXAIX, which carries a very low expense ratio of 0.015%, or less than two-hundredths of a percent. Control the fees you can control, I say.  

Now, for the Fidelity administrative fees that I didn’t know I was paying.A large portion of my net worth is tied up in index funds, including roughly $150,000 in my employer-sponsored 401k plan. But let’s go with a $100,000 portfolio as an example to keep the math even simpler.

Recordkeeping Fee

My Cost: 0.58%, or $580 of a $100,000 portfolio

For Fidelity’s 401k plan at my company, the language regarding the recordkeeping fee read: The annual Plan level fee is 0.58% of the Plan’s assets. This amount will be deducted from participant accounts proportionally based upon account balance.

Pretty straight-forward. More than half a percent of my assets are diverted to Fidelity for the recordkeeping expenses they incur to operate the plan. I don’t know how common this is among 401k plans, or what percentage of employers will go ahead and cover this rather large cost (I’ve heard that some do). But I do know that it seems a tad excessive to me, and I would prefer it to be a flat fee as opposed to corresponding directly to my individual balance. I can understand that costs increase somewhat proportionally to a company’s cumulative assets, but I very much doubt that they increase at such a rate. From what I can find, $100-200 per participant is a standard amount to pay for administrative fees. Not, for a balance of nearly $100,000, $580 per year. An amount that will only increase with my balance.

Advisor/Consultant Fee

My Cost – 0.30%, or $300 of a $100,000 portfolio

Rightfully perturbed as I was by the recordkeeping fee, I take more issue with the advisor/consultant fee, despite the lesser cost. Per Fidelity: The annual Plan level fee is 0.30% per year for the first $9,999,999.99 of the plan assets. This percentage does decrease slightly, down to 0.20%, depending on the amount invested in your company’s plan. But assuming your company has less than $10 million in assets, Fidelity gets another three-tenths of a percent for their advisory expertise.

What bothers me about the advisor/consultant fee is that I don’t use Fidelity’s advisor/consultant services. At all. As for my company, they may invite Fidelity to man a booth at a benefits fair once a year, or hold a sparsely-attended financial literacy class on occasion. Apart from those contributions, I can’t help but think we overpaid for their services. With a portfolio of $100,000, lop off an additional $300 for this counsel.

Total fee percentage:  0.895%

Total annual cost to a $100,000 portfolio: $895

To reiterate, fees add up. No matter what they’re called, or where they’re hidden, they add up. With Fidelity’s 401k plan, you can expect to pay nearly nine tenths of a percent each year in addition to the expense ratio on the fund that you hold. This may not sound like much, but when you consider that this is an annual cost robbing you a portion of the benefits of compound interest, these fees will cost you a huge amount over the course of your investing life.

I’m not trying to rag on Fidelity. My 401k fees are not on par with the Edward Jones heist. And I understand the need for bookkeeping fees from the provider’s point of view. My issue is with the secretive nature of these fees, buried in an annual prospectus. I would imagine that the annual email disclosure goes mostly ignored by my coworkers.

So how does Fidelity measure up with other 401k plans? Actually, not all that poorly. According to Investopedia, Fidelity falls in line with the industry standard:

Ranging from 0.5% to 2%, 401(k) plan fees can vary greatly, depending on the size of your employer’s 401(k) plan, the number of participants, and the plan provider.

Maybe it’s not them, it’s me. But any fee is a fee too much, especially so if they make them hard to find.

For the sake of further comparison and understanding, do you know what kind of fees are in your 401k plan?

Sours: https://impersonalfinances.com/fidelity-401k-fees/
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The Hidden Fees in 401(k)s

Even if you’ve managed to avoid sitting through a company benefits meeting, you’re no doubt familiar with the concept of a 401(k) plan. A 401(k) is a defined-contributions plan. You sock away a set amount each paycheck, your employer may match some percentage of the contribution, and years later you declare your own financial independence.

But even if you know how a 401(k) works and enthusiastically contribute to one, do you know about hidden fees that can come with it?

Finding the Fees in 401(k)s

Many workers don't. A TD Ameritrade survey found that just 27% of investors knew how much they paid in 401(k) fees, and 37% didn't realize they paid fees at all. Unfortunately, many never think to ask how much a 401(k) provider makes off the money you hand over to invest. Your provider takes a fee every month, and over time these fees can impact your returns. Some 95% of 401(k) plan participants pay fees.

These fees aren't truly "hidden." The U.S. Department of Labor requires 401(k) providers to disclose all fees in a prospectus that is given to you when you enroll in a plan, and which must be updated every year.

We know you devour these statements the minute they arrive. As the fees are no longer difficult to locate, it pays to pay attention to them. When you receive a 401(k) statement or prospectus, check for line items or categories such as Total Asset-Based Fees, Total Operating Expenses As a %, and Expense Ratios.

Key Takeaways

  • 401(k) plans come with various fees that aren't always evident to the investor but can greatly impact an account's return over the long-term.
  • Ranging from 0.5% to 2%, 401(k) plan fees can vary greatly, depending on the size of your employer’s 401(k) plan, the number of participants, and the plan provider.
  • Reflecting mostly administrative and investment management costs, 401(k) fees spring from two sources: the plan provider and the individual funds within the plan.
  • Although individual investors can't do much about plan provider fees, they can choose funds within the plan with lower expense ratios.

Two Key 401(k) Plan Fees

Finding the fees is one thing. Understanding them is another. The most firmly entrenched of the fees is the 12b-1 fee, named after the relevant section of the Investment Company Act of 1940. Generally filed under marketing and distribution expenses, 12b-1 fees are ostensibly earmarked for the intermediaries who sell 401(k) plans to your employer. These fees are capped at 0.75% of assets, while some funds impose a 0.25% shareholder services fee.

Note that 12b-1 fees charged by individual funds are separate from investment management fees, which are the cut the 401(k) provider takes for itself.

For example, Fidelity bills itself as the No. 1 recordkeeper of 401(k) plans in the United States. Businesses that use Fidelity report paying as little as 0.53% in fees, though some say expenses are well over 1%.

401(k) fees fall into two basic categories: those charged by the plan provider, and those charged by the mutual funds or ETFs in the account.

Breaking Down 401(k) Plan Fees

Notably, 401(k) plan fees typically fall into four categories:

  • Investment
  • Administrative
  • Individual service
  • Custodial

To illustrate the point, here’s a sample account quarterly summary, not from a 401(k)provider but rather from a third-party firm that administers plans and keeps records. (Yes, you can bet they get a cut too, but your employer probably picks that up.) The figures, which represent dollar amounts, are on a total contribution of $3,207.70 for the quarter.

Expenses
Administrative Fees$25.00
Investment Fees$4.35
Asset/Revenue Sharing$2.31
Audit, Fidiciuary & Consultng$13.25
TOTAL$44.91

This means the contributor is paying $44.91 in fees on a principal of $3,207.70. Curiously, that’s 1.4% to the penny, which makes it seem as though the expenses are retrofitted to the ratio.

Is it reasonable that only 98.6% of your contributions find their way into the designated investments? That’s not a rhetorical question.

The Impact of 401(k) Fees

401(k) plan fees can vary greatly, depending on the size of your employer’s 401(k) plan, the number of participants and the plan provider. One study found that large plans (more than $100 million in assets) almost uniformly have fees below 1%. The largest plans are usually below 0.50%.

The small plan marketplace is a different story. Average fees for small plans (under $100 million in assets) were between 1.5% and 2%, with plenty of plans with less than $50 million in assets paying more than 2% a year in fees.

The difference in these percentage points doesn't sound like much, but it can really add up over the years. Take these three hypothetical friends: Joe, Tyler and David each invest $100,000 in a mutual fund at age 35. Each account earns an annualized return of 8%, but the accounts charge annual fees of 1%, 2% and 3%. David paid 3% and has $432,194 in assets at age 65. Tyler paid 2% and has $574,349 for retirement. Joe paid 1% and is the big winner, with $761,225 saved for retirement.

1%

The annual fee charged by the average 401(k) fund, according to the Center for American Progress.

What to Do About 401(K) Fees

Short of boycotting the 401(k), there's not much you can do about fees charged by the plan provider or administrator—although, if you discover they're egregious (say 2%) you could raise the issue with your human resources department. The marketplace is incredibly competitive. If one provider's fees are too much, there are plenty of alternatives.

However, you can take some action on charges for individual funds within a 401(k) plan. Look in each fund's prospectus for the listed expense ratio, which is the sum of fees expressed as an annualized percentage. If you have a choice between two similar funds—two growth-stock funds, for example—consider the one with the lower expense ratio.

In general, equity funds tend to be more expensive than bond funds, while ETFs are cheaper than mutual funds. But of course, don't compromise your investment goals, risk tolerance or common sense just in to score a lower fee.

The Bottom Line

Fees, regardless of how conspicuously they’re disclosed, should be but one criterion in choosing a 401(k) investment. The most important factor should be overall return. Look at asset class, the fund manager’s competence and track record first. These areas should have a greater impact on long-term returns than fees. And don’t forget to consider whether you are more comfortable with an index fund or an actively managed fund.

Sours: https://www.investopedia.com/articles/personal-finance/061913/hidden-fees-401ks.asp
How Your 401k Works and How to Save $100,000 in Fees

If you have questions about Fidelity 401(k) fees – how they work, how much they cost on average, or how you can find & calculate them for your plan – you’ve come to the right place. In this guide, we’ll show you how to calculate the full cost of a Fidelity 401(k) plan using their DOL-mandated fee disclosure.

By the end of this guide, our aim is for you to have a complete understanding of how Fidelity’s pricing works, how much you’re paying, and how your fees stack up.

Let's dive in.

What are Average Fidelity 401(k) Fees?

We have evaluated the fees of a few Fidelity plans over the years as part of our 401(k) fee comparison service. Below are the averages we found for these plans.

Average Fidelity 401(k) Fees

Avg. Plan Assets

$4,007,011.94

Avg. Plan Participants

46

Per-Capita Admin Fees

$309.63

All-In Fees

0.71%

While their per-capita admin fee was below the $422.30 average in our 2018 401(k) fee study, that number can easily grow much higher due to the way these fees are charged.

In our experience, about 70% of admin fees charged by Fidelity are paid by revenue sharing – “hidden” 401(k) fees that lower the investment returns of plan participants. Not only are plan sponsors or participants often unaware that they’re paying them, but they’re always charged as a percentage of plan assets. That means plan participants will automatically pay Fidelity higher and higher administration fees for the same level of service as their account grows. That’s not fair!

When you factor in compound interest, these growing fees can make a huge dent in your retirement savings. As such, you want to do everything in your power to avoid paying them.

If you’re currently using Fidelity for your 401(k), your first step to avoiding these fees is to find out whether or not you’re paying them. We’ll show you how to do that next.

High 401(k) Fees

How to Find & Calculate Fidelity 401(k) Fees

To understand how much you’re paying for your Fidelity plan, I recommend you sum their administration and investment expenses into a single “all-in” fee. Expressing this as both a percentage of plan assets, as well as hard dollars per-participant, will ultimately make it easier for you to compare the cost of your Fidelity plan to competing 401(k) providers and/or industry averages.

To make this easy on you, we’ve created a spreadsheet you can use with all the columns and formulas you’ll need. All you need to do is find the information for your plan, then copy it into the spreadsheet.

Fidelity 401k Fees_Template Spreadsheet

Doing this for Fidelity can be a bit of a pain, but not to worry – we’ll show you everything you need to do in 4 simple steps.

Step 1 – Gather All the Necessary Documents

To calculate your Fidelity 401(k) fees, the only document you’ll need is their 408(b)(2) fee disclosure - what Fidelity has named a “Statement of Services and Compensation”.

Fidelity is obligated by Department of Labor regulations to provide employers with a 408(b)(2). This document contains plan-level information about their administration fees. This information is intended to help employers evaluate the “reasonableness” of these fees. This document can be found on the Fidelity employer website.

If you hired an outside financial advisor for your plan, you’ll need to factor their pricing into your Fidelity fee calculation. This information can usually be found in a services agreement or invoice.

Once you’ve gathered your 408(b)(2), you’re ready to move on to step 2.

Step 2 – Locate Fidelity’s Direct 401(k) Fees

401(k) administration fees can be “direct” or “indirect” in nature. Direct fees can be deducted from participant accounts or paid from a corporate bank account, while indirect fees are paid from investment fund expenses - reducing their annual returns. Direct fees are the most transparent and are probably the ones you’re most familiar with.

Fidelity’s direct fees can be found on the “Administrative and Recordkeeping Services and Compensation” page of their 408(b)(2) fee disclosure:

Fidelity 401k Fees_Direct Fees-1

Next, we’ll see if Fidelity charges your plan any hidden administration fees.

Step 3 – Uncover Fidelity Hidden 401(k) Fees

In our experience, roughly 70% of the administration fees charged by Fidelity are paid by revenue sharing – a form of “indirect” fee paid from the operating expenses of some mutual funds. Revenue sharing increases the cost of a mutual fund, thereby lowering its annual returns. There are two basic forms:

  • 12b-1 fees – these payments usually compensate a financial advisor.
  • Sub-Transfer Agency (sub-TA) fees – these payments usually compensate a recordkeeper.

Revenue sharing is not disclosed as a hard dollar amount on the Fidelity fee disclosure. Instead, its buried in the expense ratio of plan funds, making them really easy to overlook. You can find these “hidden” administration fees disclosed as a percentage of assets in the “Appendix B - Investment” section of the “Disclosure of Services and Fees” document:

Fidelity 401k Fees_Revenue Sharing-1

In step 4, you’ll multiply the revenue sharing and wrap fee percentages by the applicable fund balance to calculate the indirect fees charged by Fidelity.

Step 4 – Calculate Your All-In 401(k) Fee

In this step, we’ll enter the information we found into our spreadsheet to calculate your plan’s total cost – or “all-in” fee (administration fees + investment expenses).

First, enter the fund information from your Fidelity 408(b)(2) document into the spreadsheet. The formulas will automatically calculate your indirect fees.

Fidelity 401k Fees_Indirect Fees

Next, we need to calculate your direct fees.

Enter Fidelity’s direct fee into the appropriate line item towards the bottom of your spreadsheet.

If an outside financial advisor charges additional fees, enter the amount into your spreadsheet.

Fidelity 401k Fees_Completed Spreadsheet

At this point, all of your administration fees and investment expenses (net of indirect fees) should be broken out and totaled, giving you the all-in fee of your Fidelity plan. $16,582.15 for our example.

To make it easier for you to benchmark your fees against other plans, we recommend expressing this number as a % of plan assets. In our example, this number is 1.06% ($$16,582.15/ $1,557,993.00).

Evaluate Your Admin Fees on a Per-Capita Basis

After you have calculated your all-in fee, we recommend you take a quick look at your Fidelity administration fees on a per-capita (i.e., headcount) basis.

The reason?

Excess administration fees – basically, fees that outstretch your 401(k) provider’s level of service – might not be readily apparent if they’re solely evaluated on an all-in basis with investment expenses. This is especially true if your plan has lots of assets.

To demonstrate the value of this evaluation, consider a $1,625,825.48 401(k) plan with only 7 participants from our 2018 small business 401(k) fee study. While its $25,611.64 all-in fee (1.58% of plan assets) was only a bit above the study’s 1.40% average, its $2,521.81 per capita administration fee ($17,652.64/7 participants) was about six times average!

To calculate your per-capita administration fees, simply divide the administration fee total from your spreadsheet by the number of participants in your plan. For our 13-participant example, this number is $637.83 – quite a bit higher than what participants could be paying with a low-cost 401(k) provider.

Don’t Let Your Fidelity 401(k) Fees Get Out of Hand

By now, you should have a complete breakdown of your Fidelity 401(k) fees and how they’re being charged.

Even if yours are below average now, Fidelity’s revenue sharing can cause them to very quickly become excessive as assets grow. For this reason, it’s crucial that you compare your plan’s fees on a regular basis.

Too much trouble? We’ve got a solution.

Simply switch to a 401(k) provider that charges fees based on headcount – not assets - to the extent possible. Such a fee structure will make it easier for you to keep your 401(k) fees in check as your plan grows. You just might save some money while you’re at it.

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Sours: https://www.employeefiduciary.com/blog/fidelity-401k-fees

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