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Use Pre-Tax Money for 401k Advice
Posted by GuestPoster in Personal Finances
This article will explore the possibility for plan participants to use pre-tax contributions to their retirement account to fund 401k advice.
Know that you ALREADY pay management fees directly out of the monies you have invested in the preselected mutual funds offered in your 401k plan. You just do not see a bill. The management fees are automatically deducted; and, in all likelihood, you are not even aware that they are being deducted.
To comply with the Pension Protection Act of 2006, which became effective in January of 2008, plan providers (the company that sells your employer the 401k platform that you use) have had to inform employers that fee payment for 401k investment advisors is an option employers may elect.
This is obviously not something you have seen advertised in any television spot. Investment companies that dominate the 401k plan provider industry are not shouting this news from the rooftops. Why? The have no financial incentive to do so. To the extent a plan participant hires a third party, independent investment advisor to provide individualized, one-on-one, face-to-face investment advice, the plan provider is likely to lose the potential for an IRA rollover client when the plan participant retires.
In addition, to the extent that the company plan has adopted a self directed 401k, a sub-account often referred to as a self directed brokerage account or SDBA, a plan participant electing this option will relieve the investment company of the fees it collects from the mutual funds it suggests to the plan.
If your company had elected the direct fee payment feature, you may use pretax contributions from your account to pay an independent investment advisor. While this may seem redundant for a plan that only has a limited number of mutual funds as investment choices vs. a self directed 401k, there is still benefit to having someone monitoring your investment selection that is willing to let you know when conditions have changed and an adjustment is necessary.
So if you are looking for 401k advice and want to know if this option is available in your plan contact your human resources department and ask. If no one can tell you if 401k investment advice is available, request a document called a Summary Plan Description. The answer will be there.
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