15 Hidden Fees To Watch Out For in Retirement

6. Loads

Loads are typically described as front-end or back-end.

A front-end load is an expense incurred at the purchase of the fund. For example, a 3% front-end load on a $5,000 investment means that $150 goes toward the sales fee, and $4,850 is actually invested.

Back-end loads are deferred sales charges, or redemption charges, that go into effect when a fund is sold before a certain time. Back-end loads tend to decrease the longer you wait to sell the fund. According to Morningstar, back-end loads start at around 5% to 7% in the first year. They go down to 0% in the next five to seven years.

Look For No-Load Funds To Save Money

Not all mutual funds come with these kinds of expenses, so seeking out no-load funds where possible can help you keep more money in your investment accounts over the long run.

7. Taxes

As you approach retirement age, taxes will likely become one of your bigger expenses.

Traditional 401(k) plans and individual retirement accounts can be tax-deferred, which helps maximize savings. But, when you withdraw from these accounts, you’ll have to pay taxes on that money. Interest earned through savings accounts is taxed at your normal income rate, and the income that some bonds generate might be taxable as well. Moreover, any profits from selling an investment are taxed at the capital gains rate.

Know Where To Put Your Money First

Before you start putting your money in taxable accounts, such as mutual funds and bonds, it’s recommended that you maximize your 401(k) and IRA options, reported Forbes.

8. Early Withdrawal Penalties

Just because you think of yourself as retired doesn’t mean the IRS agrees. Once you’ve reached age 59 1/2, you can take the money out of qualified retirement plans, including IRA, 401(k) and 403(b) accounts, without incurring a tax penalty. But, if you withdraw money prior to that, the IRS adds a 10% penalty on the taxable portion of your distribution.

Exceptions to the Early Withdrawal Penalty

If an exception applies, you can avoid the early withdrawal penalty. For 401(k) and 403(b) accounts, IRAs allow early distributions to pay for higher education costs — including for your kids — and insurance premiums while you’re unemployed.

9. Trading Fees

When you buy and sell shares, the brokerage charges you a fee for each trade. For example, both Schwab and Fidelity offer $4.95 trades.

Choose Your Financial Advisor Wisely

When your financial advisor engages in excess trades on your behalf to rack up commissions and fees, it’s called “churning.” This practice is illegal, and you can report it to the SEC through the online complaint form. You’ll want to work with someone who won’t take advantage of you, so be careful when picking your retirement financial advisor.

10. Penalties for Failing To Take Required Distributions

Beginning in the year that you turn 70 1/2, you must start taking minimum distributions from your qualified retirement plans. You can postpone required minimum distributions from 401(k) and 403(b) plans if you’re still working, as long as you don’t own more than 5% of the company in question.

How Much the Penalties Cost

If you fail to take the required minimum distributions after age 70 1/2, the IRS imposes a penalty equal to 50% of the amount that you didn’t take out. The payouts are designed to make sure you receive your retirement benefits during your lifetime, so do yourself a favor and make active withdrawals on time.

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