Your Money: 401(k) Fees Make or Break Returns

April 27, 2013 | | USA Today |

Bet if I asked, the odds are good that many people could tell me to the penny what they just paid for a gallon of gas.

So how much did it cost you to invest in your 401(k) last year? I don't know myself. And you likely don't know either.

Over the years, most of us have heard that if we just start saving a few hundred dollars a month in our 20s, we can retire a millionaire. Compound interest is your best friend.

But what about the fees in a 401(k)?

"I don't think they go out of their way to explain the consequences of what seems like a small innocent fee," said Martin Smith, the correspondent for "The Retirement Gamble," produced for PBS' Frontline. Robert Hiltonsmith, policy analyst for Demos, a public policy group in New York, said some investors may mistakenly believe that higher-fee funds are going to give them higher returns.

But a fee structure doesn't offer a clue to future returns. No one, of course, can consider fees in a vacuum, either.

"If fees were the only consideration, the only thing you'd ever have in your 401(k) would be a money market fund," said Collins, of the mutual fund trade group.

Lower-cost options include: money market funds; bond funds; index products, such as a Standard & Poor's 500 index fund; and other index funds.

"This is not to say that all high fees are bad and all low fees are good," Vitagliano said.

But expenses are taken out of returns and lower-cost index finds can be just fine for many 401(k) investors, he said.

Hiltonsmith, 31, said he sets aside 3% of his pay into his 401(k) — which he quickly admits isn't nearly enough — but says he faces high costs of living in New York and is paying down $45,000 in student loans. He makes $61,000 a year and has about $10,000 in 401(k) money.