401k fees. should wife max out 401k?

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timesachangin
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401k fees. should wife max out 401k?

Post by timesachangin »

My wife works at a small firm and her benefits are pretty good especially health care. However on her 401k which she maxes each year and her employer does a 6% match she is paying fees of around $400 / quarter. The fees are labelled "general admin charges" They work out at around .25% of her balance.

.25% doesn't seem like much but for 2015 if she invests 17500 around 10% will go on fees . Should she continue to max out 401k or just the 6% match?

EDIT $400 / quarter
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JamesSFO
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Re: 401k fees. should wife max out 401k?

Post by JamesSFO »

:confused

I'm having a math question here, if the fees are 0.25% then on $17,500, I come up with a $43.75 of admin fees. How is that 10% going to fees?
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timesachangin
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Re: 401k fees. should wife max out 401k?

Post by timesachangin »

.25% of the entire balance goes as fees. Every quarter she pays around $400 in fees.
livesoft
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Re: 401k fees. should wife max out 401k?

Post by livesoft »

6% match could mean many things. If 6% of salary and salary is $500,000, then that's great. If 6% of $18,000 (2015 contrib limit), then that's more than $1,000 which is also great.

Of course your spouse should max out 401(k) contributions even though there is an additional charge of 1% a year. She might wish to borrow the maximum possible from her 401(k) which I think is $50,000 and invest is elsewhere. That would save the 1% on that $50,000.
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JamesSFO
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Re: 401k fees. should wife max out 401k?

Post by JamesSFO »

Ok, even with the edit I'm still not 100% sure what the fees are, is it $400/quarter @ an overall rate of 0.25% per year which implies a balance of $640K... or is it a 1% per anum charge, 0.25% is assessed per quarter which would be $160K balance?

My point being comparing the fees to the contribution amount isn't illuminating.

And the difference between 0.25% per year fees and 1% fees per year is a huge difference and without knowing what the underlying expense ratios are it is hard to do the math.

But I think with a 6% match, fees of 0.25% per year + reasonable underlying fund fees aren't so terrible.
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retiredjg
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Re: 401k fees. should wife max out 401k?

Post by retiredjg »

timesachangin wrote:.25% of the entire balance goes as fees. Every quarter she pays around $400 in fees.
Are you saying that you see an entry on every quarterly statement that says $400 goes to "general admin fees"? For a total of $1600 a year? Or did you come up with this number of $400 on your own?

Part of the answer depends on your tax bracket.

Part of the answer depends on how much total you are contributing - are you filling 2 401k/403b type accounts and 2 IRAs and putting money into taxable as well? Or just partially filling some of these accounts?


Are the expense ratios reasonable are are they high too?
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Re: 401k fees. should wife max out 401k?

Post by cherijoh »

timesachangin wrote:My wife works at a small firm and her benefits are pretty good especially health care. However on her 401k which she maxes each year and her employer does a 6% match she is paying fees of around $400 / quarter. The fees are labelled "general admin charges" They work out at around .25% of her balance.

.25% doesn't seem like much but for 2015 if she invests 17500 around 10% will go on fees . Should she continue to max out 401k or just the 6% match?

EDIT $400 / quarter
My 401K charges bookkeeping fees that amount to ~0.09% of the balance per year (assessed on a quarterly basis at 0.025%). I get a 1:1 match up to 5% of my salary. I invest up to the max.

One thing to consider is the ER of the underlying funds. I have some institutional class VG index funds in my line up of choices with really low ERs. Often times, when a plan has no bookkeeping or administrative fees, the only choices are high expense ER funds. I'd much rather have the least expensive funds plus an admin fee than no low ER funds. Of course some people get stuck with high ER funds AND the administrative fee. :annoyed
JW-Retired
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Re: 401k fees. should wife max out 401k?

Post by JW-Retired »

timesachangin wrote:.25% of the entire balance goes as fees. Every quarter she pays around $400 in fees.
By itself 0.25% is not egregious but answering your max out question depends on what other expense ratios are applied to the investments. The 0.25% admin is not the only expense.

You need to tell us the expense ratios of the all funds available in the 401k before anybody can give a good answer. Often some are high but a few are low. She should not be investing in the those high ER ones.
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Last edited by JW-Retired on Sun Feb 15, 2015 11:35 am, edited 1 time in total.
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TX_TURTLE
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Re: 401k fees. should wife max out 401k?

Post by TX_TURTLE »

timesachangin wrote:My wife works at a small firm and her benefits are pretty good especially health care. However on her 401k which she maxes each year and her employer does a 6% match she is paying fees of around $400 / quarter. The fees are labelled "general admin charges" They work out at around .25% of her balance.

.25% doesn't seem like much but for 2015 if she invests 17500 around 10% will go on fees . Should she continue to max out 401k or just the 6% match?

EDIT $400 / quarter
I'm not sure if I understand correctly. If the 401K expenses are .25% of the balance, in order to pay 10% of $17,500 in fees you need a balance of $700,000. If that is correct, one more year of contributions+company match won't change much your wife's situation. The question is: does her 401K plan allow in-service rollovers? If it does, she can open a low cost IRA (ex. at Vanguard) and do a roll over. Moving forward, she could continue doing this once a year. If this is not an option, personally, I would still max out the 401K (at $18,000 for 2015).
livesoft
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Re: 401k fees. should wife max out 401k?

Post by livesoft »

JW Nearly Retired wrote:She should not be investing in the high ER ones.
JW
Maybe not, but sometimes one has no choice. My spouse's plan had the lowest fund with a 1.9% expense ratio. Even so, the tax-deferment was I think worth it. Save money in the 33% and 28% tax brackets and withdraw in the 15% and 0% tax bracket after rolling over to low-expense-ratio funds after a dozen years or so.

So high e.r. funds are not by themselves a reason not to contribute the maximum to the 401(k) plan.
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investor1
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Re: 401k fees. should wife max out 401k?

Post by investor1 »

Are the fees she is being charged a percentage of the asset value held in the account or is she paying a flat fee? Do you have any other tax advantaged space that isn't filled? If you are unsure, tell us which tax advantaged space your are using.
ERISA Stone
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Re: 401k fees. should wife max out 401k?

Post by ERISA Stone »

I'm pretty sure he's saying his wife's account balance is around $160-170k. So, when 25 bps are taken annually (4 quarters X $400), it's around $1700 for her account. This is around 10% of her EE maximum annual contribution.

Is her balance one of the highest in the plan? If not, it "feels" like the company might be paying too much in fees. I'm assuming that's a quarterly fee based on your 10% comment.
cjg
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Re: 401k fees. should wife max out 401k?

Post by cjg »

Assuming that the alternative is a taxable account and that your income isn't low enough to have qualified dividends and capital gains be tax free, a 401k is very easily a better deal. 2% yearly dividend taxed at 15% is 0.30% of drag eliminated that's without considering the benefits of eliminating capital gains taxes or the possibility of being in a lower tax bracket in retirement. In addition, she can roll over the balance into a lower cost IRA or 401k after she leaves the employer.

Even if they're charging 0.25% quarterly, there's a good chance that the 401k is still a better deal but that would depend on a lot more factors.
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Re: 401k fees. should wife max out 401k?

Post by JW-Retired »

Maybe I missed something? If we don't know the expense ratios how we can't say if this 401k is worthwhile or not? Are some of you posters thinking this 0.25% fee labeled "general admin charges" somehow includes the underlying mutual fund expense ratios? I never heard of this in a 401k. :shock:
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ruralavalon
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Re: 401k fees. should wife max out 401k?

Post by ruralavalon »

Are the "general admin charges" she is paying a percentage of the asset value held in the account or is she paying a flat fee?
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timesachangin
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Re: 401k fees. should wife max out 401k?

Post by timesachangin »

ERISA Stone wrote:I'm pretty sure he's saying his wife's account balance is around $160-170k. So, when 25 bps are taken annually (4 quarters X $400), it's around $1700 for her account. This is around 10% of her EE maximum annual contribution.

Is her balance one of the highest in the plan? If not, it "feels" like the company might be paying too much in fees. I'm assuming that's a quarterly fee based on your 10% comment.
This is it. Sorry for being so vague. Had a baby recently and she was screaming down my ear as I posted. I did the sums in my head and rounded up to .25% her ER aren't too bad. The ER are

JETSX 0.57 (73%)
JIEQX ER 0.62 (9%)
JTBMX 0.56 (12%)
VGELX 0.92 (5.5%)
JEFSX 1.01 (1%)

% of portfolio in brackets
Topic Author
timesachangin
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Re: 401k fees. should wife max out 401k?

Post by timesachangin »

Also there is no way to know but I guess her balance is in the top 3 at the company.
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timesachangin
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Re: 401k fees. should wife max out 401k?

Post by timesachangin »

oh and her tax bracket is 28%
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hoppy08520
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Re: 401k fees. should wife max out 401k?

Post by hoppy08520 »

I was in a John Hancock plan too.

JETSX at 0.73% ER (0.57 base + 0.25) hurts but it's not that uncommon compared to many plans. My plan was slightly worse -- we had a 0.35% admin fee. JETSX is a totsl stock market index fund. I'd contributr the max to that plan before investing in a taxable account. But I'd max an IRA befote maxing the 401(k).
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timesachangin
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Re: 401k fees. should wife max out 401k?

Post by timesachangin »

Thx for reply. You mean Roth IRA? Is your rationale that she can invest at lower cost?
ERISA Stone
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Re: 401k fees. should wife max out 401k?

Post by ERISA Stone »

timesachangin wrote:Also there is no way to know but I guess her balance is in the top 3 at the company.
You can go to http://www.freeerisa.com and look up the most recent Form 5500 filing for the company. The schedule I will give you the total plan balance. Take her balance as of the same date to get a rough idea of her % of plan assets.
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timesachangin
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Re: 401k fees. should wife max out 401k?

Post by timesachangin »

Wow interesting thanks. There were multiple results for the company but it is safe to say she has 20/25% of the total balance.
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