401(k) Fees - How Treat?

[David]

I downloaded my 401(k) data into Money and had to make
some manual adjustments to get things to work out - for
example, I had to enter my contributions by hand,
although all of the investment activity came in ok.

There is still one thing I can't figure out, though - how
should fees in the 401(k) account be treated?

The way it works is that certain units of an investment
(for example, .914 units of the Van Kampen Aggressive
Growth Fund) are deducted from the 401(k) account to
cover fees, and when these transactions are downloaded,
they show up as "remove shares" transactions. This is
fine, I think, except that it makes the cost basis come
out funny. The fees paid should have no impact on the
cost basis.

Has anyone run into this problem? Any thoughts or
solutions?

Thanks!

[Chris Cowles]

I make those 'sell' transactions, with all proceeds going to commission.
--
Chris Cowles
Gainesville, FL

"David" <djr...@yahoo.com> wrote in message
news:011d01c2d6cc$22333950$a601...@phx.gbl...

[David]

Chris,

Thanks for your reply. Your solution raises 2 more
questions though:

1) How do you make proceeds go to commission? I'm
guessing the sell generates cash proceeds which show up in
your cash transactions register, and you then enter an
equivalent expense?

2) Entering the fee as a sale would reduce your cost
basis, but it should not. How do you get around this in
Money?

Thanks again!

David

>.
>

[Cal Learner-- MVP]

In microsoft.public.money, David wrote:

>
>Thanks for your reply. Your solution raises 2 more
>questions though:
>
>1) How do you make proceeds go to commission? I'm
>guessing the sell generates cash proceeds which show up in
>your cash transactions register, and you then enter an
>equivalent expense?

A longer way is to generate an non-deductible investment expense in
the cash transactions register and a sell from the investment
transactions to raise the fee.

>
>2) Entering the fee as a sale would reduce your cost
>basis, but it should not. How do you get around this in
>Money?

The basis does not really matter in a 401K account. Chris's way has
simplicity and gives a better assessment of how the investment as a
whole is doing.

[Chris Cowles]

Enter the number of shares sold, no price, $0 total, and enter the amount of
commission. You may have to go back and edit the price and total fields, but
it will work out right.

--
Chris Cowles
Gainesville, FL

"David" <djr...@yahoo.com> wrote in message

news:08db01c2d7c3$b3c8a1a0$3001...@phx.gbl...

[David]

Thanks so much for the follow-up. Hopefully you see this
additional question as well and are kind enough to reply
yet again.

Intuitively, your solution makes a lot of sense and
should work. When I enter the data, though, it of course
calculates a price to make price * quantity = commission,
so net effect is 0. But again, this has an impact on the
cost basis of the account, and I am trying to avoid
that. Am I missing something?

Thanks again.

>.
>

[Cal Learner-- MVP]

In microsoft.public.money, David wrote:

>Thanks so much for the follow-up. Hopefully you see this
>additional question as well and are kind enough to reply
>yet again.
>
>Intuitively, your solution makes a lot of sense and
>should work. When I enter the data, though, it of course
>calculates a price to make price * quantity = commission,
>so net effect is 0. But again, this has an impact on the
>cost basis of the account, and I am trying to avoid
>that. Am I missing something?

There *is* an impact on the account. You sold some fund shares to
pay the fee. You really do have a capital gain or loss, but it is
not a taxable event because it is in a 401K account.

Had this not been a tax-deferred account you would have been liable
for CG tax on the shares you sold to pay the fee. The fee itself
would probably have not been deductible; it would be subject to the
2% threshold for investment and other miscellaneous expenses.

[David]

I knew I was missing something!!!!

I was thinking that the fee was the same as a commission
on a trade, but you're absolutely right, it is not!

Thanks again!

>.
>

[Steve Dell]

Assuming that your 401K will ultimately be rolled into a conventional IRA
when you leave your current employer, what difference does the cost make.
don't forget that when you take money out of the IRA it comes out as "normal
income" and not as "capital gains or losses." With that in mind, it is not
as critical to track the costs of the funds in the 401k/IRA.

As far as fees go, you are better off by paying the fees separately in cash
instead of selling shares. Paying by check allows you to deduct those fees
subject to normal limitations.

Steve

"David" <djr...@yahoo.com> wrote in message

news:08db01c2d7c3$b3c8a1a0$3001...@phx.gbl...

[David]

Steve,

Thanks for your reply.

I agree, the cost basis really doesn't "matter". I was,
however, trying to understand how Money was calculating
the number since I was trying to compare the value of my
401(k) portfolio to the amount of money I have
contributed to it (which I thought would be equal to the
cost basis). By learning how Money was calculating the
number, I was able to reconcile a separate file I have
that tracks my contributions to Money, and I also wound
up learning something about how the 401(k) works as well.

I was not aware I could pay the fees by check - maybe
it's something I should look into. At the end of the
day, though, my fees are only about $40 a year, so I'm
not going to save a ton by doing it that way.

Thanks again.

David

>.
>

[Chris Cowles]

One reason to do that is because of the limitations on contributions. The
money in the account is subject to contribution limitations and cannot be
replaced; using money outside the account to pay fees avoids that loss of
earnings potential. It may be nominal but is worth consideration.

--
Chris Cowles
Gainesville, FL

"David" <djr...@yahoo.com> wrote in message

news:004601c2dbc4$c3a2e220$2f01...@phx.gbl...

[Steve Dell]

In addition to using money outside the contribution limitations, you can,
assuming you pay by check, deduct the amount of the fees on your taxes as a
miscellaneous expense. it would be treated the same way you might write off
an investment magazine subscription or some such thing.

if you pay it from existing shares, there is no write-off.

Steve
"Chris Cowles" <NoSpam@ForMe> wrote in message
news:eS$epMA3C...@TK2MSFTNGP12.phx.gbl...

[Chris Cowles]

I believe that has no practical effect for most taxpayers, since you have to
exceed 2% of your adjusted gross, do you not?

--
Chris Cowles
Gainesville, FL

"Steve Dell" <sd...@one.net> wrote in message
news:v60b2aj...@corp.supernews.com...

[Steve Dell]

I would agree that the 2% threshold can be a problem for some taxpayers. As
someone who has a variety of deductions that go there, I normally don't have
a problem exceeding that limit.

With either Money or Quicken, at least you can capture that information.
When you are doing your tax planning, you might be able to lump a series of
expenses into one year or the other to maximize the deduction.

Steve
"Chris Cowles" <NoSpam@ForMe> wrote in message

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