Read the fine print: It can help you save more for retirement

If you need additional money for retirement, the first places you should look are your brokerage, retirement and other financial accounts.

Don’t go straight to the bottom line of your statement to see how much you’ve saved. Instead, review all the information in the middle of it, along with the fine print. You’ll be surprised to see how much you’re paying in fees. Finding ways to reduce them will go a long way toward making up a retirement saving gap. Here are some examples of fees you could be paying:

Account Maintenance Fee

Brokers charge, on average, a $20 fee to maintain each mutual fund in your account. This fee is paid annually by the mutual fund directly to your broker. If you have money in five different mutual funds, your broker is paid $100 of your money by the mutual fund each year. This is an example of a fee that’s difficult to identify and trace. Contact your broker to find out if you’re paying it.

Commissions

Most people know they pay commissions to their broker when they buy or sell stocks and other investments. However, you owe it to yourself to understand exactly how much you’re paying and whether you could get a better deal.

Custodial Fees

Some brokers charge this fee to cover the administrative work required to service your account. This fee could be a set amount or a percentage of the assets in the account. Either way, it’s easy to avoid it. Many discount or online brokers have individual retirement accounts (IRAs) and other investment accounts that don’t come with a yearly custodial fee.

Deferred or “Back-End” Loads

These fees are deducted from your account if you redeem mutual fund shares before a specified date. The amount you will be charged — and any conditions that would exempt you from paying them — should be explained in the prospectus, but language related to this is often confusing. The amount is usually a percentage, and it’s often reduced the closer you get to the specified date. Also, check to see if the fee is charged on the amount you originally invested in the fund, or if returns are included, as well.

Expense Ratios

These are annual fees charged by all mutual funds, index funds and exchange-traded funds to pay fund-related expenses. They’re charged as a percentage of your investment in the fund. It can range from a small fraction of a percent up to two percent or more, which can significantly impact your returns. It’s always worth evaluating how much you’re paying in expense ratios against what you’re earning. A fund earning three percent a year with a two percent expense ratio is a terrible deal. A fund earning ten percent with the same expense ratio could be a good one.

Front-End Loads

These are sales charges or commissions paid by most mutual funds to the broker or salesperson who sold you the fund. With a front-end load, the charges are taken out of your money before its invested. Loads can vary greatly, but they typically range from about four to seven percent. If you invest $10,000 in a fund charging a six percent load, $600 will be removed up-front leaving only $9,400 to purchase shares of the fund.

Inactivity Fees

Think of your investment account as a trip to the amusement park. You pay for a ticket to get in. But the park makes most of its money on food, drinks, games and souvenirs.

This is similar to how an investment account works. The broker makes some money from account-related fees, but earns far more on account fees when you buy and sell investment products. If you don’t do much trading, the brokerage doesn’t make much money.

That’s why some firms charge an inactivity fee if you don’t buy and sell a certain amount each year. If you have a buy-and-hold investment strategy, seek out a broker that will not charge you this fee.

IRA Closing Fee

In order to discourage you from moving your money to another firm, some brokers charge a fee to close your IRA. It can range from $25 to $100 per account. This isn’t a large amount of money depending on the size of your IRA, but there’s no reason to pay it. Many firms don’t charge it. It’s worth checking before you open a new IRA.

Margin Fees

Do you ever borrow money from your broker to purchase investments? This is called buying on a margin. If you do this, then you’re paying interest on the money you borrow. Calculating the interest is difficult, but it may be 8 to 10 percent or more depending on the broker. Buying investments on margin is generally a bad idea because they have to perform extraordinarily well to make up for the margin fees.

Marketing Fees

Many funds take a deduction from your assets for advertising, marketing and other similar promotional expenses. These are called 12b-1 fees and can range from 0.25 to 1 percent. Look for mutual funds with lower 12b-1 fees. You’ll find them outlined within the expense ratio section of the prospectus.

Mutual Fund Low Balance Fee

Some firms will charge a fee of between $10 and $25 if your balance in a particular mutual fund falls below a certain level. This is like adding insult to injury if your balance falls because of bad fund or market performance.

Mutual Fund Transaction Fee

Similar to a commission, this is a fee charged by a broker to buy or sell mutual funds.

Options Fees

Options trading has become popular over the past few years. That’s one reason brokers have started charging options trading fees, which usually include a flat fee for the trade (generally $5 to $10) plus a fee per contract (usually $1 to $2). This is in addition to fees already attached to the options contract.

Redemption Fees

Redemption fees are slightly different from deferred loads because they charge a percentage against the total value of the asset when you sell it, which is not always the case with deferred loads. Deferred loads may charge a fee on your original investment only.

Shareholder Servicing Fee

Some mutual funds pay your broker a percentage of your assets (up to 0.25 percent) for servicing your account. If you have $40,000 invested in the fund, that’s $100 each year. This is an example of a fee that it can be almost impossible to trace since the transaction happens between the fund company and your broker. Ask if you’re being charged it.

Transaction Fee

Many brokerage accounts charge a transaction fee each time you buy or sell a mutual fund or stock. These fees typically range from $10 to over $50 per trade.

Next steps

Watching out for investment, brokerage and retirement planning fees and finding ways to keep them in check is a great way to save more for retirement — and prevent financial firms from taking a cut out of what you’ve saved.

Interested in more ideas? Check out our tips on how to save money on bank and credit card fees in Chapter 7.

Another way to save more for retirement? Work at a part time job or start an online business. It’s an ideal way to earn additional money for retirement and to help pay some of those investment-related fees. Getting started is easy — and the cost of entry is relatively low.

What are you waiting for? Learn more today!

If you liked this article, then you might also like these:

Are You About to Blow Your Retirement Budget?

The Best Time to Start Saving for Retirement?

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