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Your Take: How Much Do You Pay Your 401(k)?

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The latest issue of Smart Money magazine has a big feature on 401(k) plans, from their origins to their offerings, and it’s a good look at how plans vary. You might get more options with a smaller 401(k) administrator but you pay higher in fees. You could reduce the number of options but employees pay less. It’s the classic choice vs. cost I suppose, though I’m not entirely sure why it’s more expensive to offer more choices with low cost mutual fund providers like Fidelity and Vanguard (often cited as the administrators with the lowest costs but employers tend to choose fewer options).

Here’s a question for you – how much do you pay for your 401(k)?

Since leaving my two prior jobs, I rolled over my 401(k) to Vanguard into rollover IRAs and it’s distributed between the Vanguard 500 Index Fund (VFIAX) and a Vanguard Emerging Markets Stock Index Fund (VEMAX). The Vanguard 500 Index has an expense ratio of 0.06% while the Emerging Markets fund has an expense ratio of 0.20%. At Vanguard, there is a $20 annual fee per fund if you opt for a paper statement but I didn’t so that fee is waived (it’s also waived if you have over $10,000 in an account). As a weighted average, I’m paying 0.12% ($11.93 on $10,000) for my 401(k). I don’t think I could get any cheaper and, in my case, I have the choice of any and every Vanguard fund.

Cost and choice was a significant driver in my decision to roll over my 401(k), followed by simplicity (I like managing everything from Vanguard, rather than multiple brokerage accounts).

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12 Responses to “Your Take: How Much Do You Pay Your 401(k)?”

  1. If you find someone that can explain why 401(k)’s are so much more expensive than IRA’s — either through up tacked on “mortality ratios” or through the expensive mutual funds that make their offering list — then please let us know. I know several people who love getting a match, but would roll their money out of their 401(k) into an IRA every year if they could.

    Not to mention your point about simplicity — it’s entirely likely for a couple to have two 401(k)’s, two rollover IRA’s, and two Roth IRA’s, which can be a rebalancing nightmare!

    • Jim says:

      They’re more expensive because of choice, when you join a company, you only have one choice when it comes to a 401(k) plan. With an IRA, you can go anywhere.

  2. Scott says:

    I actually pay a management fee for Fidelity to actively manage my 401k fund. But I can’t remember how much that fee is – is that bad?

  3. cvargo says:

    No clue what the fee is at work. All I know is I put in 6% because they match it and the rest of retirement planning is a roth IRA. I am 23 and have been contributing to a roth since I was 16. and My 401 for 5 years. I hope I have enough for retirement. I am counting on TVM

  4. Luckily, my work has a great 401k plan with Spartan Funds and ER-capped Fidelity funds. With that being said, I would definitely roll over to Vanguard(and join my Roth) if I left the company. Can’t beat those admiral funds!!

  5. mannymacho says:

    My employer pays all of the administrative fees for the plan itself. I keep my money mostly in the index funds that are available in order to keep costs low.

  6. AaronB says:

    I guess I’m lucky. My company offers Fidelity and TIAA-CREF 401A/403B plans, and I’m with Fidelity. If there are any extra administrative fees, the company must pay them. We have a great selection of funds, including many Spartan index funds (many expense ratios down in the neighborhood of 0.10%), which I’ve loaded up on.

  7. Tom says:

    I have a 403(b) plan administered by ING. ING charges a 0.10 administration fee on top of that. I don’t mind since I get low expense ratios on Vanguard index funds offered by the plan (as well as the actively managed Vanguard Explorer fund). It’s probably better than any 401(k) plan I had with past employers.

  8. Tom says:

    I have a 403(b) plan administered by ING. ING charges a 0.10% administration fee on top of the fund expense fees. I don’t mind since I get low expense ratios on Vanguard index funds offered by the plan (as well as the actively managed Vanguard Explorer fund). It’s probably better than any 401(k) plan I had with past employers.

  9. Neena says:

    I never paid much attention to these 401K fees until I finally did the work and rolled mine into an IRA. Turns out I was paying about $300 a year in administrative costs on a rather small 401K. Ridiculous!

    I put the money in a couple Vanguard funds with expense ratios of less than .40 percent.

    I’m still learning this stuff but at least I’m not getting fleeced anymore by the financial services industry.


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