Fees matter
Retirement savings accounts such as the 403(b) and IRA are great ways for public school employees to set aside money for retirement.
However, fees charged by some plans can take a big bite out of your earnings. The illustration below compares the impact various fee scenarios can have on your savings over time. In addition, we’ve compiled list of the most common fees that can affect your 403(b) and IRA returns.
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Illustration assumes an annual contribution of $5,000 and an annual rate of return of 7% over a period of 30 years. This is for illustrative purposes only and not indicative of any investment.
The 403(b) retirement plan is offered by the WEA TSA Trust. TSA program registered representatives are licensed through WEA Investment Services, Inc., member FINRA. The Trustee Custodian for the WEA Member Benefits IRA accounts is Newport Trust Company.
Disclaimer
The information provided is referencing investments in 403(b), Traditional IRA, or Roth IRA accounts and is for informational purposes only. It does not take into account your risk tolerance, time horizon, or investment objectives. Please note that mutual funds may assess contingent deferred charges on withdrawals that have not been on deposit for a set period of time described in its contract or prospectus. Your account will also be taxed and penalized on withdrawals prior to reaching age 59½. The taxation on the various listed accounts will vary and should be taken into consideration carefully when deciding on an account. Please consult your professional tax advisor prior to taking any withdrawal. The WEA TSA Trust, WEAC IRA, mutual funds, and other investment products have varying degrees of risk and should be considered carefully prior to investing. This example assumes a 7% rate of return net of any other applicable fees such as mutual fund operating expenses. For example; A mutual fund with a 7.50% return and an 0.50% expense ratio would net a 7% rate of return. Investments in mutual funds and other investment products are subject to investment risk and its principle is not guaranteed. Please review the prospectus carefully prior to investing.
Fees defined
The number one factor in determining your rate of return—after asset allocation—is cost. Fees eat into your bottom line, so to make the most of your invested dollar, you will want to minimize the fees you pay. Watch out for the following fees commonly charged to retirement savings and investment accounts.
NOTE: WEA Member Benefits does not charge any of these fees.
Mortality and expense (M&E) fee
Mortality fees are paid to ensure that, after your death, your beneficiaries will not receive less than what was contributed to the account. These fees typically range from 0.95% to 1.80% annually. M&E is most often associated with variable annuity accounts.
Commissions (Loads)
A load is a commission the investor pays to purchase (front end) or sell (back end) an investment. Look for no-load investment options to avoid this cost.
Management fee
Also called the investment advisory fee, this represents the company’s cost for managing the money in the fund. (See investment advisory fee below.)
12b-1 fee
This charge generally allows fund companies to compensate broker/dealers for selling their funds, with a payment to the representative who sold the fund. This fee is also used to cover the marketing and distribution costs of the investment.
Annual contract charge
A fee charged by a vendor for administrative expenses.
Custodial fee
The charge for safekeeping or physically holding the securities in the account.
Surrender charge (Withdrawal charge)
This fee is charged as a penalty for withdrawing your money (even for transfers) before the required holding period is over. Holding periods can be 7, 10, or even 20 years. The penalty claims a percentage of your account, typically up to 7%, but it may be higher.
Wrap account fee
Charged by a personal financial advisor, this fee is expressed as a percentage of the client’s assets under management. It is in addition to the other fees listed.
Investment advisory fee
The fee your fund manager charges to make investment decisions for your mutual fund. You don’t pay the investment advisory fee directly. Instead, it is deducted directly from your fund’s returns. The investment advisory fee is one part of a fund’s expense ratio.
For help determining what fees you pay with your current vendor, call a Member Benefits Retirement Consultant at 1-800-279-4030.
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