short answer why are small business 401ks so expensive
This is a much shorter version of a way too long tutorial I did where a detailed explanation of why small business 401k's are so much more expensive to participants and to providers than larger businesses 401 K and indeed they are more expensive from my book of benchmarkes where I can benchmark your plan expenses and performance if you are contributing to a 401k sponsored by small business your expenses average 1.5 percent of plan assets each year. So for every thousand dollars you have in the plan fifteen dollars every year.
Get taken out to cover plan costs one way or another you and most of the time you don't even see those payments and you don't know where to look all you know is by the time you retire you're hundreds of thousands of dollars behind what you'd be you have been putting that money into a large business 401k If you want proof that lowering plan fees by one percent will save hundreds of thousands of dollars by the time you or your participants retire click here. OK. Here's the answer.
Why small business401k's are not nearly as good a deal because small businesses don't have any employee whose only task is negotiating fees and services the boss is busy HR departments busy and if there's a benefits expert in the HR department they're busy with health care benefits. Usually small businesses end up going to an expert you don't always get from the best deal the experts sell small businesses a supposedly FREE PLAN but the participants get a menu of funds that don't have very many good choices the expense ratios in those funds pay commissions.
Back to the experts the stockbroker the adviser the 401k company the insurance company whoever sold you that planned and these experts make the solution seem more complex than it has to be like they're the only way to get you through the minefield they tell you all the horrible things that can happen instead of giving you lowcost ways simple ways to avoid the minefield That's why small businesses need a 401k advisor like me, a FEE ONLY adviser who gets no commissions to help negotiate a 401 k plan to help design.
401 k plan that has much lower fees that don't leech out each participants accounts every year on my example if you want to see a play and 0.5 0.6 percent range, a full percent lower than average. The average is not good plus I offer more services for that price I don't just compete on price I compete on bringing large company services to small company 401k's it's not that hard to migrate to a better plan it'll save you money very first year a good plan administrator can make those conversions troublefree.
So it doesn't take a lot of Your time. it's not that complicated A plain 401 K doesn't have to pick you through a minefield I pick out and service a plan design and providers that don't go anywhere near the minefield thanks for watching this tutorial if you questions about this tutorial my other tutorials or plan costs in general give me a call or if you want watch much longer tutorial where I go into to much greater detail where smaller plants get um. um not as good a deal. Thanks for watching.
Changing jobs and moving your old 401k savings to your new employers planMeet Robert
Music gtgt Hi. As you can guess, I am into computers. In fact, I am what you call an IT professional and when you can make a processor go from zero to whoa! you're in pretty high demand in the job market. I've moved through several companies in my career, and I've discovered that, for Moi, moving my 401k from employer to employer works best. When you move your 401k to your new employer, your money retains its tax advantaged growth potential. You can take distributions from your new plan and avoid a 10 percent IRS penalty if you are 55 or older.
Also, you can manage your money in one place. Music When I start at a new company, I hit the ground running, so rolling the 401k from my old company to the new one is pretty quick and painless. My assets keep chugging along in what the numbers guys call a taxdeferred status. I've found that my new 401k had investment choices similar to my old plan, so rolling to my new 401k worked for me. My retirement goals keep downloading with the taxadvantaged benefits and I can manage my money all in one place.
Impact of 1 lower plan costs
Plan costs do matter here let's take a look at a retirement calculator sure you know one percent does matter. Over on Bloomberg this is a very simple retirement calculator. Let's say you begin investing age 25 contributing ten thousand dollars a year into you 401k and you're going to invest every year until age 65 when you retire if you're getting five percent annually on your investments then by the time you retire you'll have accumulated in that account 1.243 million dollars which is great 5 percent nice conservative investment mix mostly.
Bond funds some stocks. stock funds earn more of course you know they're more volatile Now what if you could trim costs by point 5 percent then the same investments would earn 5.5 percent. So what if you could trim plan costs now you're getting, by the timre you retire, 1.4 million dollars which is a difference over 160 thousand dollars by the time you retire. And if you could trim a full percent which I can from the average plan if you could earn 6 percent on your money instead of 5 percent.
Earning a full percent more by the time you retire, now your up to 1.6 million dollars in that retirement account which would be a difference of 340 thousand dollars by the time you retire. And that's why a lot of times I reccomend to clients they take their money out of the 401 K mix if it's an expensive 401k and put it into an IRA where they can get a much better better choices lower fees lower costs lower expense ratios for funds that they select, more money in thei pocket.
Taking cash out of your 401kMeet Victor
Music gtgt Cashing out my 401k really wasn't part of the recipe. Neither was losing my job. And I'm a long way from being able to retire, and I needed to do more than learn to cook to earn my keep around here. So I tapped into my 401k. Taking the lump sum distribution was a hard decision. I got the money right away and was able to pay a few bills. I've even reinvested some of the money and I have the time to work those investments to the best of my advantage. One thing I didn't realize is that I didn't.
Have to take all of my money out and pay taxes. I could have taken what I needed, left the rest and gave it a chance to grow. tax deferred. By accessing your 401k, You have immediate access to your money. Partial distributions are allowed And some distributions might be penalty free. You really need to find out how much you're going to lose due to taxes and potential penalties before you do anything because it may be more than you think. Cashing out isn't for everyone. It was the best choice for our situation.
You should keep in mind if you're cashing out, there is a potential ten percent early distribution penalty and a twenty percent income tax withholding. Also, the distribution is taxed as income so it may have a potential impact on your tax bracket. And remember, your savings won't have the chance to grow taxdeferred. Hopefully, I can find a job soon and try to get my retirement savings back on track. But take it from me if you have to cash out, make sure it's the right choice for you.
Andrew Answers Can I Take A Loan Out Of My 401k
Music Hello, and welcome to Andrew Answers! I'm Andrew. Today's question comes from Casey on Facebook who asked, Do I need spousal consent when requesting a loan from my 401k Well, Casey, that's a great question and while we wouldn't say that we want you to borrow from your 401k, we also know that sometimes circumstances need to require it. So, let's start with the basics first. To take a loan out of your 401k plan, first you need to make sure that your plan has the option available to you. Not all 401k plans have loan options, so you want to make sure.
You ask your employer first before you get started. Now normally there is some sort of loan documentation that goes along with that to let you know what the rules are and what you're allowed to do, so make sure you get that plan document and you read through it carefully first. But the rule of thumb around loans is that you can take a maximum of half of your account balance up to $50,000 for a loan. The lowest you can go is $1,000, so should you need anywhere between $1,000 and $50,000 you are going to be okay, and it can't.
Be more than 50 of your account balance. Once you actually sign up for a loan you're going to get an amortization schedule, which is a repayment schedule, and some sort note between you and your employer saying that you are going to pay it back in a timely manner basically the same thing you would normally use for any other kind of loan. Once you are paying that money back, there is usually going to be some sort of interest most plans require a Prime 2, so whatever the prime rate is.
Of the interest going out there plus 2 is going to be the balance. But again, it's going to be in your loan documents so you are going to want to read through that carefully. Now to get to Casey's question about if you need spousal consent, in most 401k plans you actually don't need it! The only time where you would need spousal consent is when there is a life annuity option. What does that mean Well it means if your spouse happens to pass away, they have allowed that you can.
Take ongoing payments from their 401k account upon retirement. So you are going to want to make sure there is no sort of life annuity option in the plan, as well. When you go to your employer asking about the loan option, find out if there is an annuity attached to it, as well, so you will know if you are going to need your spouse's consent to borrow from your 401k plan. That's it for Andrew Answers this week! If you have questions or want any specifics, feel free to comment where you see this tutorial, and maybe your question will come up again.
Leaving your retirement savings in an old 401kMeet Monique
Music gtgt I took the leap. I left my corporate job and opened my own coffee shop and I couldn't be happier. I can't tell you how many decisions I had to make, but leaving my 401k with my old company was a nobrainer for me. I had a lot to do here and just didn't want to spend the time worrying about what to do with my retirement savings. My investments were doing pretty well, so why move Leaving mine with my old company meant that my assets still had the opportunity to grow.
From now until when I retire. And I have no taxes due until I decide to take money out of the plan. By leaving your retirement savings with your former employer. There's no activity required on your part. Your assets retain their taxadvantaged growth potential. You can typically keep your current investments. And, the assets are usually protected from creditors' claims. Staying put also meant I didn't have to take the time to understand all the rules and paperwork about moving money and I didn't want to risk getting hit with withdrawal penalties.
And taxes because I made a mistake on how I moved my money. And I still have some control over my portfolio, though it's not as easy as when I was an employee. I can't make additional contributions to it, but I think of it as my retirement plan that I just let percolate for a long time. Things to keep in mind are Additional contributions are typically not allowed. Your distribution and investment options may be limited. You'll have to maintain a relationship with your former employer. And, the plan may not let you leave your assets there.
Personal Finance 401k Avoiding 401k Hardship Withdraw Penalties
My name is Phillip Beningoso. I'm an investment professional. And I'm going to be discussing how to avoid a 10 percent penalty with a hardship withdrawal. Hardship withdrawals are much harder to get and come with much deferred. Requirements vary from plan to plan. But in most cases you'll have to prove that you are in fact, facing a very serious hardship. IRS guidelines allow hardship distributions only for immediate and heavy financial needs. Including medical, funeral expenses or college tuition. And to stop the eviction or foreclosure process. Each plan has it's own rules governing how much of your account balance you can withdraw.
Should I Roll My 401k To An IRA
A question we're commonly asked is should I roll my 401k into an IRA There are many reasons why it makes sense, but there are also circumstances where is does not. If you choose a rollover, you can continue taxdeferred growth, open up more investment choices, possibly choose a Roth account, and consolidate your assets. However, you can't borrow against your assets, fees may be higher and custodial fees may apply. If you remain in your current 401k plan, you can always move to a selfdirected IRA later, and can potentially defer required minimum distributions past age 70.
With this option, however, you might have limited investment options. You may not be able to take a loan, and you might also need to transfer the assets if the account is less than $5,000. Staying in your 401k means it's possible to rollover to another employer's plan. If you rollover to a new 401k, may be able to borrow, will have protection from creditors, and can begin withdrawals after age 55 if you're retired without penalty. As you can see, a lot needs to be considered before making a decision, and an experienced financial planner can help.
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