Author Topic: Finally dug into my 401k fees  (Read 6147 times)

Bourbon

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Finally dug into my 401k fees
« on: June 03, 2014, 07:44:02 AM »
I am preparing to roll a $25k tIRA into my 80k 401(k) so that I can do a backdoor roth conversion later this year.  Was poking around for the form and decided to open up my statement page on a whim.  I usually track the balance etc in Mint or on the summary page available in the Wells Fargo system. I was surprised to see an “Asset Fee” of $67.65 that is being charged quarterly(Was $70.37 last go round).  I tried to research this and didn’t have much luck.

 My additional fee information page contains just these –

Participant   Florida Stamp Tax                   0.35%   Stamp Tax   Each
Participant   Loan Maintenance Fee           $8.25   Loan Fee   Quarterly
Participant   MA Morningstar(MS) Fee*   13.00 bps   Advice Track Fees   Annually charged monthly
Participant   MA Wells Fargo(WF) Fee*   50.00 bps   Advice Track Fees   Annually charged monthly

I don’t participate in the MA Advice track, have no  loan and not sure on the Florida Stamp Tax.

I thought I was going to get by without needing the 401k evaluation, sticking to the index funds and being happy.  We had no company match until this year, but are now eligibile for a 3% match.  I was planning to roll a tIRA into the account so that I can do backdoor roth’s, but then discovered this fee situation.  I had been entirely in the s&p blackrock fund(ER 0.04%), but am now in a mix of that and the Vanguard Small Cap index(ER 0.10%).

I called Wells Fargo, and the customer service rep was unhelpful, had to put me on hold twice to tell me he couldn’t tell me what the asset fee was based on and to contact my company rep.

Reached out and got sent the fee change notice from earlier this year(which I had ignored), which indicates

“Attached is a document that was sent to employees and explains the fee changes effective January 1, 2014.  Hopefully this helps explain the fees, which were reduced.“
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Types of costs associated with the plan
There are three general types of fees associated with the plan: administrative fees, individual service fees, and investment fees. 
 
   Administrative fees are those payable to Wells Fargo for the costs associated with running the plan and cover the cost of services such as recordkeeping, mailing statements, account access, and transaction costs.

   Individual service fees are associated with optional features offered in the plan. For instance, the service fee to cover individual transactions such as loans.

   Investment fees are costs associated with managing the investment options offered in the plan. Each investment is managed by an advisor who is responsible for investing the fund’s assets, implementing its investment strategy, and managing the day-to-day operations. The investment fee is paid to the advisor for these services. Often these fees are referred to as the fund’s expense ratio and are shown as a percentage of the fund’s total investments. For example, if the expense ratio for a fund is 0.20%, that equals $2.00 for every $1,000 invested. The fees and expenses represented by the expense ratio for a fund are applied at the fund level and are already reflected in the fund’s published return percentage.

Occasionally, funds offer fee waivers or expense reimbursements. When this happens, there will be a difference between the gross expense ratio and the net expense ratio. The gross expense ratio is the fund's total annual operating expense ratio. The net expense ratio is the gross expense ratio minus any fee waivers or expense reimbursements. The net expense ratio is the actual expense ratio that you pay while invested in the fund.

Effective January 1, 2014, if you are invested in either of the funds listed below, you will now pay a lowered wrap fee. The current wrap fee will be decreased from 0.50% to 0.30%, this fee represents an overall reduction in the plan administrative costs paid to Wells Fargo.
•   Wells Fargo Stable Return Fund N*
•   Wells Fargo/BlackRock S&P 500 Index Fund N*

Do I keep kicking at HR to get some more detail on the fees and how they are calculated(is that an annual 0.30% or monthly, what are the fixed dollar costs, etc)  or just suck it up and accept it?  I’d heard and read some about the insidious hidden fees, but really counted myself lucky to have some low ER index fund options, and had even clicked on the “additional fee” page before and nowhere is a wrap fee mentioned.  I’m thinking even with the additional fees that it makes sense to roll the tIRA over to the 401k(out of VTSAX with Vanguard right now) so that I can continue to make Roth contributions, but

For the record these are my fund choices -

Wells Fargo Stable Return Fund N
Pimco Total Return/A
Invesco Growth and Income Fund R
WF/ BlackRock S & P 500 Index CIT N
Thornburg Intl Value/R5
MainStay Large Cap Growth R1
Ivy Fund-Mid Cap Growth A
Artisan Mid Cap Value Fund Inst.
Laudus Mondrian Emerging Markets Instl
Vanguard Small Cap Idx/Signal
« Last Edit: June 03, 2014, 07:51:57 AM by Bourbon »

Another Reader

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Re: Finally dug into my 401k fees
« Reply #1 on: June 03, 2014, 08:26:02 AM »
Review all of your statements for a year and see which fees were actually deducted from your account.  The list looks like a generic compilation and disclosure of all the fees you could be charged in various situations.  Figure out which ones apply to you.  It looks like the plan participant may be paying the administrative fee that the plan provider charges instead of the company.  Your HR people should be able to explain the fees you are actually being charged.  The "wrap" fee is concerning and I would want a thorough explanation.  You are paying 0.34 percent to be in an index fund, plus wrap is something I associate with annuity plans.

FrugalSpendthrift

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Re: Finally dug into my 401k fees
« Reply #2 on: June 03, 2014, 09:21:29 AM »
Have you considered just rolling the tIRA right into a ROTH IRA?  You would have to pay tax on the amount that you convert, so you'll have to reconsider your longterm tax planning. 

It could be a good strategy if
  • You are young and this money will have a long timeline to compound
  • You can pay the tax out of pocket
  • It doesn't bump you into a higher tax bracket
  • If all of the contributions were deductible
  • You don't expect your tax bracket to go down in retirement

Cromacster

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Re: Finally dug into my 401k fees
« Reply #3 on: June 03, 2014, 09:35:24 AM »
Good thing you are looking at your fees.

But I am at a loss as to why you are looking to roll over your tIRA into your 401(k)....so you can then do a backdoor Roth conversion...?  I'm not exactly sure how the rules work with rollovers into 401(k)s, but with standard 401(k) contributions you can't convert a 401(k) until you leave your job.  And why are you trying to put more of your money into relatively high expense account when you already have it in a very low expense index fund?

You could just convert your tIRA to a Roth and skip all this hassle.
« Last Edit: June 03, 2014, 09:44:13 AM by Cromacster »

Bourbon

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Re: Finally dug into my 401k fees
« Reply #4 on: June 03, 2014, 10:07:43 AM »
Review all of your statements for a year and see which fees were actually deducted from your account.  The list looks like a generic compilation and disclosure of all the fees you could be charged in various situations.  Figure out which ones apply to you.  It looks like the plan participant may be paying the administrative fee that the plan provider charges instead of the company.  Your HR people should be able to explain the fees you are actually being charged.  The "wrap" fee is concerning and I would want a thorough explanation.  You are paying 0.34 percent to be in an index fund, plus wrap is something I associate with annuity plans.

Enlightening.  Company has been through some changes lately and it looks like the 401k has been hit before

Statement    Fee     Open     Close    Personal ROR   % of Opening Balance   % of Closing Balance
6/30/2012    $(1.77)    $21,388.85     $32,865.62    -4.17%   0.00828%   0.00539%
9/30/2012    $(2.09)    $32,865.62     $34,927.53    5.34%   0.00636%   0.00598%
12/31/2012    $(2.04)    $34,927.53     $36,117.61    3.39%   0.00584%   0.00565%
3/31/2013    $(2.16)    $36,117.61     $45,382.92    8.69%   0.00598%   0.00476%
6/30/2013    $(52.55)    $45,382.92     $50,843.42    2.70%   0.11579%   0.10336%
9/30/2013    $(68.32)    $50,843.42     $58,511.77    5.05%   0.13437%   0.11676%
12/31/2013    $(70.37)    $58,511.77     $67,065.48    10.34%   0.12027%   0.10493%
3/31/2014    $(67.65)    $67,065.48     $77,308.86    1.72%   0.10087%   0.08751%
« Last Edit: June 03, 2014, 10:09:15 AM by Bourbon »

Bourbon

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Re: Finally dug into my 401k fees
« Reply #5 on: June 03, 2014, 10:20:41 AM »
Have you considered just rolling the tIRA right into a ROTH IRA?  You would have to pay tax on the amount that you convert, so you'll have to reconsider your longterm tax planning. 

It could be a good strategy if
  • You are young and this money will have a long timeline to compound
  • You can pay the tax out of pocket
  • It doesn't bump you into a higher tax bracket
  • If all of the contributions were deductible
  • You don't expect your tax bracket to go down in retirement

I'm expecting my bracket to go down in retirement.  I'm toggling this year from being paid on a trailing commission into a salary + bonus.  The raise increased my overall take home and for at least this year I will also be collecting residual commissions from the previous agreement.  It's a good problem to have but this will likely be my best year for awhile and may wind up with some income in the 33% bracket.  That's probably a one time thing but I expect we will be in the 28% and ineligible for the Roth in the future as well.


Bourbon

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Re: Finally dug into my 401k fees
« Reply #6 on: June 03, 2014, 10:30:07 AM »
Good thing you are looking at your fees.

But I am at a loss as to why you are looking to roll over your tIRA into your 401(k)....so you can then do a backdoor Roth conversion...?  I'm not exactly sure how the rules work with rollovers into 401(k)s, but with standard 401(k) contributions you can't convert a 401(k) until you leave your job.  And why are you trying to put more of your money into relatively high expense account when you already have it in a very low expense index fund?

You could just convert your tIRA to a Roth and skip all this hassle.

If I convert the tIRA to a Roth I will be paying taxes on the full amount.  Hadn't considered this before and probably doesn't make sense as with my taxes this year, but maybe I should consider it when it can be done at 28%.

With a normal backdoor roth, you contribute a taxed $5,500 to a tIRA and convert the next day to a Roth.  The problem is when you have existing tIRA funds, the IRS calculates that the amount you convert proportionally from the taxed and untaxed funds.  In my case, I'm looking at about 5/6ths pretax funds in my IRA and 1/6 taxed.  The result is that I would be rolling ~4600 of my untaxed money and 900 of the taxed for this year. 

If I empty the IRA of all untaxed funds by moving them to the 401k(which does accept excess contributions from other tax free plans), then I have no pretax basis in my tIRA.  I get to contribute to a ROTH as normal, except for the 1 day stopover in a tIRA.

I feel like I never make sense when I try to talk about the backdoor Roth, so sorry if that wasn't helpful.

Cheddar Stacker

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Re: Finally dug into my 401k fees
« Reply #7 on: June 03, 2014, 01:53:11 PM »
Bourbon, I'm not sure if your fee question has been answered properly or not based on what I read here, and I don't have a perfect answer but maybe some insight for you and other readers.

I run our company's 401K plan so I deal with a lot of this administrative crap regularly. With the fee transparency rule changes over the last few years many things have changed.

Whatever you invest in will be charged the expense ratio, and I think we all know that so no real change there. In addition, there are many fees that are paid for administration of the plan (investment advisory fees and TPA fees). In the past many of these fees were taken out of everyone's accounts and never properly disclosed, so it was hard to even gauge how much they were.

In our company, and as I'm told at many other companies, the employers are picking up a large part of the administrative fees, but they are also "sharing" these fees with the employees. Nice huh? It's really not much of a change from how it used to be, except that now the 401K plan has to report the fees. This is likely why your fees jumped from $2 to $52 last summer.

It's still a small price to pay for all the benefits of your 401K and I wouldn't let it deter you from executing your plan as you described.

FrugalSpendthrift

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Re: Finally dug into my 401k fees
« Reply #8 on: June 03, 2014, 02:38:03 PM »
If I convert the tIRA to a Roth I will be paying taxes on the full amount.  Hadn't considered this before and probably doesn't make sense as with my taxes this year, but maybe I should consider it when it can be done at 28%.

With a normal backdoor roth, you contribute a taxed $5,500 to a tIRA and convert the next day to a Roth.  The problem is when you have existing tIRA funds, the IRS calculates that the amount you convert proportionally from the taxed and untaxed funds.  In my case, I'm looking at about 5/6ths pretax funds in my IRA and 1/6 taxed.  The result is that I would be rolling ~4600 of my untaxed money and 900 of the taxed for this year. 

If I empty the IRA of all untaxed funds by moving them to the 401k(which does accept excess contributions from other tax free plans), then I have no pretax basis in my tIRA.  I get to contribute to a ROTH as normal, except for the 1 day stopover in a tIRA.

I feel like I never make sense when I try to talk about the backdoor Roth, so sorry if that wasn't helpful.
The 401k fees won't be as much as the tax that you would save by enabling you to do a backdoor roth, so it seems like a pretty sound strategy.  When you leave this job, you can just roll it all back to Vanguard.