Unraveling 401(K) Investment Fees: What You Need To Know

When you sell your 401(k) investments, there are two types of fees that mutual funds can charge: early redemption fees and deferred sales charges. Early redemption fees are in place to discourage you from short-term trading and not all mutual funds have them. Deferred sales charges are back-end loads and typically charged directly to your account.

Sales charges - assessed when you sell shares

When you sell shares, sales charges may be assessed. These charges are typically charged directly to your account and are referred to as a deferred sales charge. Sales charges help cover the cost of commissions paid to the advisor who sold you the fund.

These charges are collected specifically to pay a commission to the broker. Typically, the fee goes down over time, eventually dropping to zero if you hold the fund long enough. The holding period required to eliminate the sales charge is defined by the fund, but it can be as long as six years.

There are two types of fees that mutual funds can charge when you sell shares: early redemption fees and deferred sales charges. Check with your fund to see if either of these applies to you. Early redemption fees are in place to discourage you from short-term trading. Not all mutual funds have them, but those that do specify a minimum holding period that ranges from 30 days to one year. Sell before that minimum duration and you get charged the fee, which could be a stated dollar amount or a percentage of the value of shares sold.

Redemption fees are deducted when shares are sold in a short period of time. A redemption fee is paid to the fund to defray the cost of redeeming the shares and is also designed to discourage frequent trading, since mutual funds are generally considered long-term investments.

Investment fees generally range anywhere from 0.03% - 2% of plan assets.

Redemption fees - paid to the fund to defray the cost

Redemption fees are deducted when shares are sold in a short period of time. A redemption fee is paid to the fund to defray the cost of redeeming the shares and is also designed to discourage frequent trading, since mutual funds are generally considered long-term investments.

These fees are typically charged directly to your account. For example, a sales charge may be assessed when you initially purchase shares and deducted from the amount you invest. Sales charges may also be assessed when you sell the shares, referred to as a deferred sales charge. Sales charges help cover the cost of commissions paid to the advisor who sold you the fund.

Not all mutual funds have redemption fees, but those that do specify a minimum holding period that ranges from 30 days to one year. Sell before that minimum duration and you get charged the fee, which could be a stated dollar amount or a percentage of the value of shares sold.

These fees are collected specifically to pay a commission to the broker. Typically, the fee goes down over time, eventually dropping to zero if you hold the fund long enough. The holding period required to eliminate the sales charge is defined by the fund, but it can be as long as six years.

Management fees – are paid out of fund assets to the fund’s investment adviser for portfolio management. Distribution and/or service 12b-1 fees – are paid out of fund assets for marketing and selling fund shares, such as compensating brokers and others who sell fund shares.

Management fees - paid to the fund's investment adviser

Management fees are paid out of fund assets to the fund's investment adviser for portfolio management. These fees are typically charged directly to your account and are assessed when you initially purchase shares and deducted from the amount you invest.

These fees are collected specifically to pay a commission to the broker. Typically, the fee goes down over time, eventually dropping to zero if you hold the fund long enough. The holding period required to eliminate the sales charge is defined by the fund, but it can be as long as six years.

Management fees generally range anywhere from 0.03% - 2% of plan assets. Not all mutual funds have management fees, but those that do specify a minimum holding period that ranges from 30 days to one year. Sell before that minimum duration and you get charged the fee, which could be a stated dollar amount or a percentage of the value of shares sold.

Management fees are not the only fees you may encounter when selling your 401(k) investment. There are two types of fees that mutual funds can charge when you sell shares: early redemption fees and deferred sales charges. Early redemption fees are in place to discourage you from short-term trading. Deferred sales charges on mutual funds are called back-end loads.

These fees are typically charged directly to your account. For example, a sales charge may be assessed when you initially purchase shares and deducted from the amount you invest. Sales charges may also be assessed when you sell the shares, referred to as a deferred sales charge. Sales charges help cover the cost of commissions paid to the advisor who sold you the fund.

Distribution and/or service 12b-1 fees - paid for marketing and selling fund shares

Distribution and/or service 12b-1 fees are paid out of fund assets for marketing and selling fund shares, such as compensating brokers and others who sell fund shares. 12b-1 fees get their name from the SEC rule that authorizes a fund to pay them.

These fees are collected specifically to pay a commission to the broker. Typically, the fee goes down over time, eventually dropping to zero if you hold the fund long enough. The holding period required to eliminate the sales charge is defined by the fund, but it can be as long as six years.

These fees are typically charged directly to your account. For example, a sales charge may be assessed when you initially purchase shares and deducted from the amount you invest. Sales charges may also be assessed when you sell the shares, referred to as a deferred sales charge. Sales charges help cover the cost of commissions paid to the advisor who sold you the fund.

Another type of shareholder fee is a redemption fee, which is deducted when shares are sold in a short period of time. A redemption fee is paid to the fund to defray the cost of redeeming the shares and is also designed to discourage frequent trading, since mutual funds are generally considered long-term investments.

Investment fees generally range anywhere from 0.03% - 2% of plan assets.

Other expenses - expenses not included in the other two categories

When you sell your 401(k) investments, there are two types of fees that mutual funds can charge: early redemption fees and deferred sales charges. Early redemption fees are in place to discourage you from short-term trading and not all mutual funds have them. Those that do specify a minimum holding period that ranges from 30 days to one year. Sell before that minimum duration and you get charged the fee, which could be a stated dollar amount or a percentage of the value of shares sold. Deferred sales charges on mutual funds are called back-end loads.

These fees are collected specifically to pay a commission to the broker. Typically, the fee goes down over time, eventually dropping to zero if you hold the fund long enough. The holding period required to eliminate the sales charge is defined by the fund, but it can be as long as six years.

Other expenses include custodial expenses, legal expenses, accounting expenses, transfer agent expenses, and other administrative expenses. Investment fees generally range anywhere from 0.03% - 2% of plan assets.

Frequently asked questions