retirement

Which is better: An IRA or 401(k)?

Retirement » Which Is Better: An IRA Or 401(k)?

Lower expense ratios and other costs
Lower expense ratios and other costs | Tuxedo © Discovod/Shutterstock.com; business suit © Odua Images/Shutterstock.com

A 401(k) plan is a great place to build your nest egg, but the price of admission can be high.

The average 401(k) investor paid 0.63 percent in expense ratios in 2012, according to a study by the Investment Company Institute. That represents a fee of $6.30 for every $1,000 invested.

While that might not be so bad, 401(k) investors often are subject to a host of other fees that can further eat into returns.

By contrast, IRA investors can eliminate many such charges simply by purchasing no-load mutual funds from companies that hold the line on costs.

"Fees are one of the few things that investors can control," says Joshua Itzoe, partner and managing director of the institutional client group at Greenspring, a wealth management firm based in Towson, Md. "The lowest-cost way to invest is through index funds or ETFs."

For example, someone who holds the investor class shares of Fidelity's Spartan Total Market Index Fund pays an annual expense ratio of just 0.1 percent -- or $1 in costs for every $1,000 invested.

If you have at least $10,000 to invest in the Fidelity fund, your expenses drop to 70 cents per $1,000 invested.

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