Top 10 IRA Mistakes-#6 Overpaying Fees and Loads on IRAs, 401(k)s & 403(b) Plans

We help people who are entering retirement or want good retirement strategies to create retirement monies they can never outlive. Come to visit me at my office for a free consultation!

Call: 1-833-313-7233

Request your FREE skilled-care planning kit to better prepare you for retirement. http://www.justaskfreeman.com/request-your-kit/

***Connect with us on Facebook: https://www.facebook.com/JustAskFreeman/ ***

*** Visit us online at www.JustAskFreeman.com ***

Financial Sources Inc.
6111 Ivy Ridge Ct
Upper Marlboro, MD 20772 

TEL:(301)627-0123 | www.JustAskFreeman.com


So today, you are going to finish our overview of the Top 10 IRA mistakes & how to avoid IRA tax traps. Let's get started. Now Freeman, let's start with mistake number 6 which covers overpaying fees and loads on IRAs, 401(k)s & 403(b) plans.

What are fees and loads and how are they taken out of our accounts?

That's a good question here. Let me refer to this Wall Street article here where we talk about the hidden cost of mutual funds. The average expense ratio for most mutual funds is 1.3 %. However, there are undisclosed costs. It may be that the participant or the owner of the mutual fund is totally unaware.

Let's look at let's say a 50-year-old. He has $300,000 which he has planned for his retirement and he says "I'll wait till I'm age 65 and then retire."

Now I'm gonna use an expense charge of 2%. Now, before the expense of 2% is applied,
let's get (take out) 5% per year and let's see what happens. We're gonna roll forward 15 years. Now, we're ready for distribution. I'm going to refer to this 2% because if there's a 2% charge, for 15 straight years, the amount of the income-producing asset is about $460,000. Without that 2% fee, it would be well over $627,000.

That's just a 2% fee. Now there are fees and loads that are maybe not disclosed. And that can add up to between 1% - 3%. An amazing thing about this fee is that it is not getting any interest during that time.

Now I want to give it a little analogy.
If you have $500,000 in income-producing assets, Carolyn, here's how that works.
That is $10,000 per year with the 2% fee on that asset. Suppose you have $600,000 (in assets), which means $12,000 taken out of your account. So really, 100% of your income-producing asset is not working because of the fees and loads that are applied to your account and this goes on and on and on.

Now as I fast-forwarded, I talked about the gentleman taking his retirement... assuming that he only has $467,000 because the fees were coming out (was extracted from that account)over the fifteen-year period. And he wishes to take out 5% & create an income but I don't know whether or not that would be an income that he cannot possibly outlive because now we're extracting 7% (= the 2% fee plus the 5%) that he has requested.

So what does that do? These fees erode that nest egg. Will that money last? So I would suggest that you inquire not only what your perspectives when given investment advice
but would look at your prospectus, you'll see that the 1.3% is the base but there may be other hidden charges, transfer charges.

Buying and selling securities, THERE IS RISK as I mentioned earlier but if you look at the monies that are extracted from your nest egg over time, it's significant.

It's almost like that $10,000 to come out of that asset and you're not benefitting from it
but that person could be on vacation using that $10,000 per year.

I'm wondering if we're more aware of it now also because when the 401(k)s & 403(b)s started, a lot of the employers were doing matching funds. But now they're not matching. The employees are exposed to all the loads and fees it seems. They (the fees & loads) impact him more directly.

We're gonna talk about employer-sponsored retirement accounts the TSPs, 401(k)s, the 403(b)'s. I'll refer to the employer-sponsored retirement accounts as qualified plans (pre-tax dollars).

The non-qualified is after-tax dollars. Your taxes are paid & you purchased a CD or money market account or you have a savings account.

I just wanted to preface the subject prior to us getting there. Fees are extracted from all those employer-sponsored retirement accounts.