The “Daily Plan-It”
Keating Law, PLC
Volume 14, Issue 17 8/25/2011
© 2011 Keating Law, PLC, Phone: 586-498-8400. All rights reserved.
New Disclosure Rules Will Expose
‘Hidden’ Fees inside Retirement Plans
Advisors know there's a host of unknown costs and fees
lurking inside a client’s 401(k) plans, IRAs and other
retirement accounts. Often, those fees make a world of
difference in investment returns.
But most clients don’t know the fees that they pay to plan
providers. A recent AARP study found that more than
seven in ten 401(k) plan participants incorrectly reported
that they did not pay any fees, and 6 percent said that they
didn’t know whether or not they pay fees. Clients often
fail to read the fine-print disclosures that explain fees.
A recent Smart Money article [http://tinyurl.com/3nvxpsj]
detailed the fees. I’ve included the highlights for you.
What You Don’t Know Can Hurt You
Beginning Jan. 1, plan sponsors must disclose fees to
participants. But there are other lesser-known fees to
consider. Clients who move IRA accounts to new
brokerage firms can be hit with two unexpected fees: the
account transfer fee and the annual maintenance fee.
In addition, retirement accounts that use managed-money
programs will have termination fees that must be paid prior
to money being moved from a current manager to a new
manager. These can include that quarter's asset fee,
management fee and custodian fee.
10 Fees Eating Up Retirement Savings:
1. Account termination fees.
2. Account maintenance fees.
3. Various account transfer fees.
4. Roth conversion fee: This is charged when a
traditional IRA is converted to a Roth IRA.
5. Federal fund wire fee and overnight delivery fee.
6. "Special investment" fee: This applies to nontraditional/
non-publicly traded investments such
as private placements, real estate and certain
limited partnerships.
7. "Special investment" set-up fee: This also applies
to non-traditional investments not publicly traded.
Such fees are usually one-time only.
8. Form 990-T filing fee: For accounts holding nontraditional/
non-publicly traded investments, the
custodian may need to file IRS Form 990-T to
report unrelated business income.
9. Loan processing fees: Clients who take loans
from retirement funds may face a processing fee.
10. Recordkeeping fee: Small business owners with
solo-K/individual-K plans may be charged a
recordkeeping and filing fee of several hundred
dollars, if they use the services of a record keeper.
As advisors, we can't make these fees go away, but there
may be a tax-efficient way to pay them. For instance, if a
client is in the "accumulation" phase of saving for
retirement, it would make sense to pay any allowable fees
with what's called non-qualified money, that is, money
that’s outside of the retirement accounts. This would allow
more money in the account to grow tax-deferred.
By contrast, if a client is in the distribution phase of
retirement, it may make sense to have these fees paid from
the qualified account.
As always, I hope this article has helped you and your
clients. Please contact our office if you need any
assistance.