IRA and 401k fees are compounded over the course of your career and compromise a substantial amount of retirement savings. One of the most overlooked aspects of IRAs and 401ks are fees, which sometimes can be so high they can negate the tax benefit of this investment vehicle.

A study conducted by Yale University and University of Virginia professors study of 3,000 401(k) plans with more than $120 billion in assets found that high fees are leading investors to pay an average of 86 basis points more than they would if they invested in low-cost index funds.  Many plans are characterized by large broker commissions, actively managed funds, and hidden expenses.

Generally, brokers, insurance agents and others selling investment plans stand to earn high commissions by putting clients into high-cost mutual funds, deferred annuities and other products that often are not suitable for tax-deferred accounts.

Financial advisors fall into three main categories: brokers, independent advisors and dually registered advisors. The best option is to work with an independent advisor that is acting in the capacity of a fiduciary. Aim to pay less than 1 percent in fees. A reasonable investment expense varies depending on the type of investment.

Individuals and businesses should take the time to inspect the fees on their personal plans and any plans they offer their employees. Be sure to understand how administrative costs are charged since some employers directly pay the administrative costs associated with the 401(k) plan on behalf of employees but others subtract the fees from the assets in employee accounts or recoup the costs from fees associated with individual investments. Often, employers also pay extra for access to investment advisors to design and adjust plans which can be passed along to individual participants.

Consult with a trusted CPA before executing investment decisions or initiating any substantial changes to your investment plans.  CPAs know your finances better than any other advisor and should have the expertise and network to offer valuable, preemptive recommendations. Investors and business owners of all types should look for an advisor that serves as a partner; an ideal CPA is a financial expert with companies within your industry that can provide ongoing financial and business advice when you need it most.

Camuso CPA PLLC’s focus and specialization delivers a unique perspective on best industry practices to provide the most value to clients.  Contact us today for financial and tax planning and get your finances in order: