Owing to its tax efficiency and low costs, ETFs are really becoming the most famous investment vehicle for taxable accounts. Most of the ETF providers are now looking forward to make a big push to get their products into 401k and other contributions plans, especially because of the success of ETFs in 401k and taxable accounts.
For economic point of view, if you are deciding to add ETFs to your present 401k plan, then it is very essential for you to know what your record-keeper will charge you for utilizing those assets in your present plan. You need to understand that the record-keeper usually charge extra fee for the ETFs, over the use of mutual funds. They usually charge you in two different ways – Asset-based fee and Transaction commissions per share.
Before you add ETFs into your existing 401k plan it is necessary for you to understand the record-keeper charges as well as the ETF fundamentals properly. Before you consider the overall charges to the participant, it is essential to know the additional fee that a plan may be charged for using the ETFs, over the use of mutual funds. The asset-based fee is very simple and transparent way for the plans that enable you to determine the extra fee of using ETFs, while the transaction based fees are little trickier because they totally depend on the per-share cost of the trades as well as to the trading frequency of the plan’s participants. Moreover, the frequent traders will experience higher transaction costs compared to the “Buy and Hold investors.
Today, more and more investors are engaged in buying and selling the ETFs and are looking forward to add their ETFs into their present 401k plan. Even mutual fund investors are also adding their ETFs into the 401k plan, owing to the profit and security offered by this investment vehicle. In summary, it is undeniable fact that by adding ETFs into your existing 401k plan you can easily decrease the overall plan cost, but it is necessary for you to consider the additional asset based fee or transactions fees charged by the record-keeper in any cost analysis.
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