How to start a 401k Plan without any nasty fees?

After understanding the 401k basics, it’s about time to learn how to get your own 401k plan started. Where can you signup? What providers, financial advisers, stockbrokers, and investment management companies are out there offering the best 401k investment plan?

First, you need to answer the following question: How can I get a 401k? And even more important: How to get a 401k plan that works for you?

How do I get the best possible 401k plan?

How to apply for 401k – basics explained: If your employer offers a 401k plan, then you can also signup for a 401k account. But this account is not managed by your company. It’s usually an account you can open at a financial investment management company.

That company should have a website to signup for a new account. To register and setup your new user account, the company shouldn’t charge you any money.

The Problem with 401k Investment Management Companies

Which 401k Investment Company to chose? And what’s going on with these “nasty” fees?

Before you even consider choosing a plan, we need to talk about one major part. The Broker House you are going to select in order to start your 401k funds.

As I mentioned before, you need to find providers, financial advisers, stockbrokers, and investment management companies offering the best 401k investment plans. But first of all, which ones are out there? And second most important question: How much will they cost you?

In general, pretty much every 401k Investment Management Company is going to charge you fees offering the access to different funds. Those fees are usually very complex. Most of the time, you’ll have a hard time reading and even understanding all the paperwork and it’s content.

We don’t need to research all the hidden fees in more detail – instead, it’s much better to understand one thing. There are fees. And those fees are working against you. To be more specific. Those fees cost you thousands, even hundred of thousands of Dollars if we don’t get rid of them.

Watch this Video with Dave Ramsey explaining the issue with the 401k fees in more detail.

The message is crystal clear: avoid paying any fees on your investments.
Bottom line: Fees are eating up your hard earned money

Now that we know the issue with the 401k fees, it’s even more clear what we need to do. Well, if it’s your first time creating a 401k account, then it’s very easy hundreds.

And even if you have an existing account – I would recommend to open first a new account at Americas Best 401k. And after that, let’s roll over your existing funds to the new account. 

How to invest 401k money?

Once you have signed up for a 401k plan you can pick from lots of investment options. Usually you have so many options to pick from, that you might feel already lost when looking at them!

How to find your 401k that fit’s best for your personal situation? What are Mutual Funds? Exchange Traded Funds, Bonds, International Funds, Target Date Funds, etc. etc. etc.?

The options seem to be totally overwhelming. The list goes on – and as a newbie it’s clearly impossible to understand all your options within a couple of minutes when opening and starting a 401k account.

But don’t worry too much about all the details yet. You can give yourself much more time to learn more about your investment options.

How to manage your 401k funds for maximum growth ?

For this chapter, we’ll have to spend some more time to go through all your options in more detail. However, let me give you some quick tips and an overview what you should consider when you get started with your 401 k investments.

Warning for Target Date Funds

More and more often, I can see so called Target Date funds. Those investment mixes depend on the date you plan to retire. It’s a very common investment strategy, that those funds start when you are young, with a decent mix of growth stock mutual funds.

However, as you get closer to your retirement, the funds and it’s mix will become less growth driven and more conservative.

But less risks also means, you have less return of your investment. And before you even know what’s happening, your 401(k) plan will have the majority invested in bonds and money markets that won’t give you the financial growth to support you through your entire retirement.

As you can see. That can become a real problem for you.

It’s probably for the best to ignore target date funds and better to build your personal growth portfolio from individual funds.

General Mutual Fund Investment Strategy:

401k Growth, Growth Income, Aggressive Growth & International Funds

Try splitting your 401(k) investments evenly between growth, growth and income, aggressive growth, and international funds.

If you want to know more about those four options, then please see more detailed information below.

  1. Growth Fund
  2. Growth and Income Fund
  3. Aggressive Growth Fund
  4. International Fund

How much to put in 401k funds?

As I mentioned earlier, the real deal with a 401k plan is the “free” money you’ll get from your employer. Please check my other article: What is a 401k plan, if you didn’t have a chance to read it yet.

It depends on the benefit’s policies of your company, how much the corporation is going to pay for you.

However, the match is the one and only reason why you want to use the 401 k plan.

Let me give you a simple example: If your company matches up to 6% of your contribution, then it means, that your 6% contribution of your gross income, will be matched from your employer to 100%.

To make the math simple. Let’s assume you make $100k a year, your 6% annual contribution would be $6000,–.

Because of the fact, that your company is matching up to 6% – the company matches your contribution with additional $6000,–.

That makes a total of $12.000,– for your annual contribution.

Now, let’s say you want to contribute more money to your retirement plan. And let’s further say, you decided to pay 10% of your gross income, also knowing your employer only matches up to 6%.

How does the math look like for this example?

Your contribution would be $10.000,–. And because the employer only matches up to 6% of your contribution, the employers match will be $6000,– only.

That makes a total of $16.000 for your annual contribution.

What can we learn from this 401k example?

What did we learn from this chapter of my 401k studies?

I personally recommend paying just the maximum contribution you’ll get from your employer. Every other Dollar you invest from your personal money – well, you’ll not get any extra money paid from your company.

I’ll follow up on a comprehensive 401k strategy research. I’ll dig into the best-known strategies out there. I hope I’ll be able to give you an overview to make a logical smart decision for all your personal funds. Stay tuned, my results abut the best 401k strategies will be published soon!

In the meantime, learn more about 401k Contribution Limits and check out more info directly at the IRS.

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