Expenses Associated with Setting Up a 401k

As the owner of a women’s boutique, I feel its high time that I set up a 401k for my  employees. But before I proceed, I would like to know what are the expenses involved in administrating a 401k? Marcie Maughan, Tennessee

What you are doing is absolutely right- it is smart to understand the kind of expenses that go into setting up a 401k for small business owners. You must ensure that the fees you pay to your 401k service provider are reasonable in lieu of the quality and level of the services provided. As a thumb rule, 401k expenses can be widely categorized into administration fees, investment fees and individual fees linked to an optional feature of your 401k plan.

The administration fee is charged for all the daily administrative work associated with managing your 401k, such as accounting, record keeping, trustee services, legalities, and other aspects that go into administering your plan. Additional services such as investment advice, online transactions, or any sort of electronic access may also add to your overall fees. In some cases, these fees will be deducted from the return on investment, and in others they will be charged separately. For a one-time set up fee with no hidden charges, you can consider an online 401k set-up like http://small401k.com for your small business.

Investment management is one area that accounts for most of the expenses related to your 401k. A certain percentage of the invested assets may be charged for services that are investment-related. This is directly debited from the return on investment, and your net return is what you get after a deduction of the investment fees. Understand the expenses related to your 401k investment management to make an informed decision. Individual fees are charged for the optional features you choose when designing your 401k plan; this includes taking out a loan against your 401k or a participant investment choice. 

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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