401k Fees and Charges to Beware of

My interior decoration business has 5 employees, some of them working from home. I want a 401k software package that can help me set up a 401k plan for my business from which I can take a loan when I want to expand. Do all 401k plans charge the same fees for loans? If not, what should I consider reasonable? Alison Lumpkin, Witts Springs, AR 

Unfortunately, a number of small business owners fail to ask this very important question before they sign up for a 401k plan. Before you start shopping for your plan, you should know that there are some plans that come with fees and charges that are not really reasonable at all when you want to take a loan.

A good thumb rule is to avoid a plan that charges a percentage of your loan on an annual basis. When you decide to dip into your 401k account, chances are you already have a large enough financial need. If it is business expansion for which you will need your 401k funds, chances are the bill is likely to be quite high. You definitely do not want to be paying huge fees under either of these circumstances. A 401k plan like http://smallbusiness401k.com/ that has the same fixed dollar charge for a loan of any size is a better choice. Simply make an estimate of how much you will need as your loan and compare the percentage charges with the fixed charges. You will see which one makes more sense straight away.

Lock-ups are another aspect you should beware of when you are opening your 401k account. Some plans, especially those offered by insurance companies, often have lock-up periods preventing you from taking your funds out until a specific time has passed. Until then, you are stuck with a plan that does not let you take affordable loans. If you do take the loan in spite of the high charges you are committing yourself to paying the annual fee until the lock-up period expires.

About Elliot Earl, Director, Pension Trade Association
Director, Pension Trade Association Founded in 1982, the Pension Trade Association [California Domestic Nonprofit Corporation #C1629080] is dedicated to helping workers save for their retirement through expanded coverage of 401k -type defined contribution pension plans.

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