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One of the main topics covered on The Money Sprout blog has been how to build a sustainable dividend income portfolio. Actually, that has been the focus of about 90% of the content ever published here.
We have written about the criteria my wife and I use to select dividend stocks to buy, the various financial ratios we use to screen stocks, and even publish our monthly dividend income reports.
A lot of focus has also been spent on saving money on brokerage commissions and fee’s by using new apps like Robinhood, Stockpile, and the now-closed LOYAL3. Each of these zero-cost (Stockpile charges $.99 per trade) brokers has allowed us to make hundreds and hundreds of commission free trades.
It is a big reason why we are set to earn $2,400+ (probably closer to $2,500) in dividend income this year. And why we are likely going to earn close to $3,000 in dividend income next year.
So … as you can tell … keeping our expenses low when we invest is very important to us.
But I have a confession to make … and it is one I am not proud of.
We have spent a TON on fee’s in our retirement accounts!
High Fee’s – Company Sponsored Retirement Plans
Prior to my current job, I have had two main employers … both of which had company sponsored retirement plans. One was a government sponsored 403(b) plan, while the other was a 401(k).
Over the years, I took advantage of company matches and pre-tax investments through both of those plans … while employed. Combined, we built up a nice retirement nest egg from both of these employers.
I especially enjoyed the 10% match in the 403(b) when I invested 5% of my paycheck every month. You can’t get much better than that.
And while building up these retirement accounts was rather simple, there was one action I never took … that I regret.
Paying High Fee’s for Funds
After leaving each employer, I basically left my holdings unchanged … for years. It wasn’t until recently when I started reading up on the high fee’s of most mutual funds offered in retirement accounts … that I finally woke up.
Honestly, I never paid much attention to the fee’s charged by the mutual funds I owned. I didn’t really care about them … which was a mistake on my part.
Take a look at a few of the funds I owned in these retirement accounts with their fee’s –
- FICDX – 1.17%
- FLATX – 1.14%
- FIEUX – 1.07%
- FDIKX – 0.92%
- FSESX – 0.85%
Note – These are not all of the funds we used to own in our retirement accounts, but they represent the 5 with the highest fee’s.
It is a well known fact that most company sponsored retirement plans don’t offer much flexibility when it comes to picking funds. Many come with high fee’s, but it is normally worth the investment to take advantage of company matching.
And that is why I spent years investing in these retirement accounts … for the company match.
But I missed a step along the way … after terminating with my employers … I left the accounts alone.
Rollover IRA
Now that I have wised up on high fee’s charged in many mutual funds, I have started to transfer assets in these accounts into a Rollover IRA.
My 403(b) actually had 3 different plans, and one is not eligible for any rollover. The other 2 plans, along with my 401(k) from the other employer are now combined into a single Rollover IRA. This IRA has much better fund options with cheaper fee’s.
I was able to invest in different target and index funds that have much lower fee’s. The main index fund I now own has a .035% fee and the target funds are at .16%. As you can see, that is a huge difference.
And I was able to find low cost target funds available in the 401(k) plan that we have invested in for the plan that wasn’t rollover eligible.
Keeping a Handle Taxes and Fee’s
As I mentioned in the opening of this post … most of the focus on this blog has been on building up our dividend income stream. And while we have no plans to change our strategy and goals from that account … we don’t have any pre-tax advantages in it.
My wife and I are now (finally) starting to focus more on our pre-tax retirement accounts. In addition, we are focusing on fee’s and keeping our costs at a minimum
Our first step was rolling over our 401(k) and 403(b) assets into an IRA. Our new investments have much lower fee’s, which should help save a bunch of money.
In addition, we are taking the steps to start investing in each of our (my wife and I both) IRA’s starting next year. We plan to start maxing out our contributions ($5,500 each) from money we save up in our new hustle account.
Looking back, I wished we would have focused sooner on pre-tax investments and our high mutual fund fee’s!
Note – My current employer does not offer any company match on a 401(k). Because of limited investment options in their 401(k) plan, we are opting to invest in our IRA accounts first.
Have you reviewed your investment options in a retirement account from a former employer recently? What types of fee’s are you paying? Have you consider rolling over your assets?
