College Graduates Should Watch 401(k) Fees

Editors' pick: Originally published June 1.

College graduates embarking on their first career and opening their initial 401(k) and IRA accounts should be wary of the fees assessed.

A growing number of companies has adopted auto enrollment programs that signs employees up for their 401(k) plan unless they opt out of it. Many of these programs default employees into investments such as target date funds, but Millennials should examine the fees first.

While target date funds were structured to help investors who did not want to manage their retirement actively, this choice could create even more apathy among employees, encouraging them to be lazy, set-it-and-forget investors. Investors of target date funds choose the year they plan to retire and the allocations are picked for them, adjusting from a large percentage of stocks to a smaller amount as they get closer to retiring.

Many companies are still offering matching programs where for every dollar an employee invests, they will contribute 50% or an equivalent. Some of the programs require workers to have been employed for a minimum of one year or longer before this option, known as vesting becomes active.

"For many employees, 401(k) plans may be a great way to make automatic retirement contributions," said Stuart Robertson, president of ShareBuilder 401K, a Seattle-based 401(k) retirement plan provider using a low cost, index-based investing strategy. "Think about maxing out your 401(k) contributions, because if you can swing it, setting aside the full amount offered through your plan may be a great strategy for your long-term investments."

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