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With so many painful fees to pay, what's the worst?

It seems like there's a new extra charge added each day. But the one that drains your wallet most could surprise you.

By MSN Money staff Jun 9, 2014 2:43PM

This post comes from Maryalene LaPonsie at partner site Money Talks News.

Money Talks News on MSN MoneyImage: Money into toilet © RubberBall/SuperStockIt seems as though businesses have specialized teams whose only job is to come up with new and outrageous fees to charge us.

We pay ATM fees to banks so we can access our money at night and on the weekend. After spending an arm and leg for an airline ticket, we fork over even more so the plane will carry our bag, too. If we need to make a last-minute payment, we may even be charged a convenience fee for the privilege of paying over the phone.

Of all the many fees you pay, which one is the worst? Which one has the most potential to take you to financial ruin? To find out, click through the jump and watch the Money Talks News video with finance expert Stacy Johnson. Then, keep reading to learn more about that killer fee and how to minimize how much you'll pay.

And the worst offender is …

Of all those bank fees, convenience fees and other random charges we pay, the worst by far are the ones attached to 401k's and other retirement accounts.

While new disclosure rules went into effect in 2012, 401k fees are still poorly understood and often overlooked by workers. What's more, the fees can seem deceptively small even though they have the potential to add up to hundreds of thousands of lost dollars.

Consider this example from the U.S. Department of Labor:

Assume that you are an employee with 35 years until retirement and a current 401k account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.

That adds up to $64,000 less to live on in your golden years, and that's if your 401k has only $25,000 in it. Imagine how much you would stand to lose if you were more diligent about your retirement savings.

Nearly 1 in 4 don't know about 401k fees

It may be news to you that you're paying 401k fees. That's part of the problem.

According to a 2013 survey by LIMRA, a financial industry organization, nearly a quarter of workers say they don't pay any expenses or fees for their plan. However, your 401k certainly isn't free, and don't expect your employer to be picking up the tab for you.

In fact, there can be dozens of fees attached to a 401k although they typically fall into one of three categories:

  • Plan administration fees. These are the fees associated with the cost of providing and maintaining your 401k. They may be included in the investment fees or charged separately.
  • Investment fees. This is the money you pay to have your money managed in an investment fund. These fees are listed on disclosure statements as percentages and often under the heading "expense ratio."
  • Individual service fees. These final fees are the ones attached to specific transactions and services, such as fees for requesting a loan or reallocating your funds.

While these fees can be thousands of dollars each year, you might never know it because you don't pay them directly. Instead, they are pulled out of your 401k automatically.

Without the pain of having to write a check to the investment firm for managing your account, it's easy to miss the fact that fees can be a drain on your retirement savings.

3 ways to lower 401k fees

To stop the bleeding, you first need to assess the damage. Your 401k should provide a fee disclosure statement for your review. Pull it out and take a look at what you're paying.

The Society for Human Resource Management reports the average total expense for small plans was 1.46 percent in 2012, but fees could be as little as 0.38 percent for some plans. Our advice is, if you're paying more than 1 percent, it's time for some damage control.

Try these three ways to limit your fees.

  • Invest in index accounts. Actively managed accounts have the highest fees, but Morningstar data finds they often lag behind index funds in terms of performance. Invest your money in mutual funds tied to stock indexes, such as the S&P 500, to reduce your costs and maybe even increase your returns.
  • Leave your money alone. Every time you transfer funds, you pay a fee. Pretend your 401k is a rotisserie chicken and "set it and forget it." Well, you don't want to forget it completely, but you shouldn't be switching funds every time the market hiccups either.
  • Talk to your employer. If you look through your plan prospectus and aren't impressed with what you see, let your employer know. Ask if they would consider changes that may open up new fund options. Gather a few of your co-workers to approach the human resources department together in order to make a stronger case for your proposal.

Do you know how much your 401k is costing you? If not, go find that disclosure form right now.

More from Money Talks News

Jun 9, 2014 4:17PM
Can "We the People" charge the Government a "STUPID FEE"???
Jun 9, 2014 3:23PM

I wonder why they don't talk about all the government fees. And all the new fees. I just got a fee for my house, a fire inspection fee. This is new last year. The most expensive fees are government. With the private sector I don't have to use their service. With the government if you don't pay they'll come and take it.

By the way the reason the private sector is trying to charge more is, the government is charging them more. It all comes from the government. When are these writers going to start writing about the real problem. a corrupt government that just keeps taking more and more.

Jun 9, 2014 4:07PM

Put all mine in mutual, when the company I was working for downsized, and plan on leaving it until I have to start drawing it.  Wife and I planned for our retirement when we first got married, fifty years ago. Everything we have done, since then, has been with the goal of living comfortably, not rich, when we did finally retire.  How many younger people even think of retirement nowadays?

Our problem now though, is the government is creating more and more ways of getting everything we saved, one way or another.

And if you go to your human resources dept, you're just as likely to get a drooling stare as any real help.
Jun 9, 2014 3:23PM
Do people think these fund managers make hundreds of millions a year from nothing? It's from you. And you get lower returns than low-fee index funds in exchange for the priveledge of being bent over by these guys. And you keep on doing it. Feels good, doesn't it?
Jun 9, 2014 5:19PM
Last time we flew on vacation, my carry on suitcase handle got bent from a former trip so we did not take it. Our big suitcase was 7 lbs over the weight limit and they were going to charge us an extra $90.  We opened it, sat on the ground and proceeded to stuff shoes, underwear, clothes and anything we could in my purse.  Luckily I had a big purse!  When we got to our destination, I picked up a carry on at Ross Dress for less for the flight home.  We were determined not to pay that $90 fee.
Jun 9, 2014 5:03PM

Scum-Tactic Fee, grimy fees, f-u fee, fine-print fee, oh-sh*t fee, late fee, talking-to-a-actual person fee, stupid fees, ect

Life itself is a fee the day you are born...

Jun 9, 2014 3:55PM
When the 401's went into effect, the financial advisor companies went into euphoria. Trust, a wonderful word however overly used and generally not so trustworthy. When you invest, you will pay for that investment as a commission. Be careful of paying over and over for that investment via fees or continually paying for reinvestment commissions. Set up a cash account where all dividends and interest go into the cash account. Then when enough is in the cash account make another investment however pay that commission one time. We are retired and all of the dividends and interest from our IRA's goes into the cash account and we draw from that account to pay bills and do not pay fees to withdraw funds.
Jun 9, 2014 7:08PM
my cell phone has 8 different taxes on it!
Jun 9, 2014 5:47PM
By far the worst are the airlines. If people don't read 401K information, that is their fault. The airlines are being absurd with constant add-ons to already absurd fees for travel.
Jun 9, 2014 4:24PM

the worst??? obamacare.    they took away our rights and are forcing us to buy something we may not want  just to  live here in the usa.. if not we get fined forever or untl we comply with their intrusion into our lives


Jun 9, 2014 5:04PM

Oh well people really just need to understand that if they are not diligent- EVERYONE THEY DO BUSINESS WITH is pick pocketing them. If they can find a way to get your money, they will!

Jun 9, 2014 6:21PM
I came here to tell them they were wrong - but they got the correct answer.  I've known this for a very long time.  It is absolutely criminal what "Fund Managers" charge for our 401K.  It should simply NOT be a percentage - it should be a flat REASONABLE RATE!   We are being raped by these institutions. (Fidelity, JPMorgan, etc)

There was a great study in the 90's that compared 450 Funds to SP500 from 1972-1995

Q: How many funds beat SP500?
A: 6

Q: How many funds b eat SP500 AFTER management fees?
A: NONE....that''s correct....absolutely NONE OF THEM

I'd encourage ALL of you to put your money in index funds (DOW, SP500, RUSSEL, etc).  These funds are not managed - they just mirror these stock indices.  

Why the Fed doesn't step in and regulate these morons is beyond me.  This is the BIGGEST change we could make to help people with retirement.  It can literally save people HUNDREDS OF THOUSANDS (Millions?) upon retirement.

Do you know why Jamie Dimon, Kramer and so many other Financial CEOs and Hedge Fund managers are Billionaires?  Because they TOOK OUR MONEY!

Jun 9, 2014 3:36PM
Now how many people actually purchase things that they don't understand and blame the people offerring the product for sale?  If you are not happy with the product, don't purchase. 
Jun 9, 2014 5:20PM
How about the $25 to put your crap in the overhead bin! That would be a money maker and would get rid of delays!
Jun 9, 2014 6:01PM
my small business provided a 401k for all employees. 20% did not even bother to join. we put up 1/2 of what you put up, with a limit of 3%. so if you put in 6% of your wages, we would put in 3%. in addition we had profit sharing. at the time the business was sold 39% of the employee money was in money market accounts. go figure. and the company paid all fees except those embedded in the mutual funds. in many cases, companies underwrite mediocre plans, more out of ignorance than intent. the big banks and brokerages add all kinds of fees. the government did not make them do it. some of it is hard to understand and difficult to avoid. however, most of it can be mitigated. people need to start taking responsibility.
Jun 9, 2014 6:32PM
How about advertised prices that don't include the sales tax?  Sure, it's less a hidden fee than a hidden cost, but why, oh why, can't people just say that their $99.99 product includes the sales tax so that you can go into the store with a single $100 bill instead of having to muck around with all sorts of additional costs?  It wouldn't make it any harder for retailers to record, in their books, that the cost of the item was $93.56 (or whatever), the added tax makes it up to $99.99 (or, PLEASE, a flat $100!) and wouldn't this make a great ad campaign?  All Our Prices Include The Sales Tax, So What You See Is What You Pay.  Same goes for hotels, with all their "tourist fees, occupancy taxes, room taxes" etc, not being shown in the advertised rate. 
Jun 9, 2014 3:15PM
If YOU don't know about 401(k) fees because YOU didn't read the printed and online materials associated with your account, should that somehow become MY fault? Should We The People have to subsidize your refusal to know what you were doing?
Jun 9, 2014 4:52PM
Unless you are up on every detail, sounds like 401 is not the best way to go. No matter, the govt. always wins
Jun 9, 2014 4:51PM
Awh come on guys, these companies couldn't make their quarterlies to the stock holders without these fees. If there's a problem with paying them, disassociate yourself with the companies and you won't have to whine as much... 
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