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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

Content is the opinion of the author and does not represent the position of any other person or entity. Information is from sources believed to be reliable but cannot be guaranteed.

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401(k) plan without fees

originally posted: 4/28/2005  revised: 11/23/2010

Q: My boss wants to set up a 401(k) retirement plan in our small company but will not pay the fee that most companies charge to get the plan started. Is there any way to get the 401(k) started without any charges?

A: No, all 401(k) plans incur some type of expense for required services like a bonded trustee (usually a bank or investment company) to handle certain functions. None of the financial srvice firms offer their services for free, although some build the charges into the investment accounts instead to reduce or eliminate charges that the business pays. Still, in one way or another, you are paying for that service.

A number of all-inclusive services are available the provide small business 401(k) plans at minimal price (usually about $500 per year).

As an alternative, consider that a number of laws have changed over the past few years that collectively make old-fashioned Individual Retirement Accounts the obvious vehicle of choice for small businesses to set up a retirement savings plan. As an employee, you probably will not notice the difference between one of these new IRA-based retirement plans and the 401(k) plan that your company would otherwise use. The features are similar but the costs, liability and paperwork are much lower for the business. The business is not limited by the $3000 contribution limits that usually apply to individual IRA owners. Businesses can contribute almost any amount desired as long as the business retirement plan is set up for that purpose. Although plan loans are restricted, your funds are still available without penalty for first time home purchase and medical expenses. Unlike 401(k) plans, there are little if any administrative costs, although we recommend an annual review of all financial arrangements. This option allows the employer to set a default account while permitting employees to select and manage their own IRA account anywhere they wish. A free CD from the IRS is available to further explain the options available. Individual assistance to set up and manage an account is available in request.

We should add that in financial services, like most other things, the least expensive option is seldom the most satisfying nor the best value for your budget.

Employer-sponsored IRAs are a flexible low cost alternative to a small business 401(k) plan.

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