Small Company 401k - Extremely High Fees

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Texas Wahoo
Posts: 3
Joined: Mon Feb 25, 2019 2:06 pm

Small Company 401k - Extremely High Fees

Post by Texas Wahoo »

I recently changed jobs and the new company I am working for is very small (less than 20 employees). They offer a 401k, but it is through an insurance company and they do not offer a company match. The fees are extremely high - they add a 1.75% administrative fee on top of all of the funds. Thus, they have a Vanguard Index choice, which charges .03%, but the total fee is 1.78% after they tack on the administrative fee. They also have expensive fees that end up with over a 3% fee, but I'm obviously not going to put my money in one of those. My wife and I already max out backdoor Roths, she maxes out a 403b, and we have money left over to invest.

My question is, does it make sense to put the maximum into the Roth 401k and just hope that the fees do not eat too much of it away before I move on to the next company? Another option is that it appears that the plan has a stable value fund that pays 1.5% that I could put it in for now. Otherwise, I could just ignore the plan entirely and put all of the money in the taxable Vanguard fund. Thoughts?
lessismore22
Posts: 166
Joined: Sun Jul 01, 2018 8:02 pm
Location: USA

Re: Small Company 401k - Extremely High Fees

Post by lessismore22 »

Those fees don't leave you with much of a choice. I'd put any excess you have into a taxable account with VTSAX and rebalance to your AA in your wife's 403b.
JBTX
Posts: 6977
Joined: Wed Jul 26, 2017 12:46 pm

Re: Small Company 401k - Extremely High Fees

Post by JBTX »

As usual, the answer is "it depends".

- I'd probably still max it out, under the assumption that I won't be there forever, or the company may change to a better plan down the road. If it turns out you are there 20-30 years, and they never change the plan, then a taxable account may have been better. But that is a bet I'd be willing to take.

- whether you should be doing Roth or traditional depends on your tax rate. For many people traditional 401ks make more sense, but again, it depends.

- once you've established yourself there you may choose to mention that there are cheaper plans out there. Sometimes the owners dont really realize it. Typically the owners are participants in the plan so lower fees can help them too. I was able to help my wife's small company switch to a cheaper plan, with some good advice from other posters here.
MotoTrojan
Posts: 10659
Joined: Wed Feb 01, 2017 8:39 pm

Re: Small Company 401k - Extremely High Fees

Post by MotoTrojan »

This should not be legal. I’d write HR/CEO a friendly but stern letter.

Guideline is $96/year-employee and has VG/DFA funds at cost. No excuse for this insanity.
retired@50
Posts: 3467
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Small Company 401k - Extremely High Fees

Post by retired@50 »

I would avoid the stable value fund, since the fee to participate seems higher than the interest earned, it appears you'd be losing .25% just for participating. I'd try reading the following link and see if you cannot convince the "boss" of the wisdom of switching 401k custodians.

Regards,

https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan
This is one person's opinion. Nothing more.
jdilla1107
Posts: 849
Joined: Sun Jun 24, 2012 8:31 pm

Re: Small Company 401k - Extremely High Fees

Post by jdilla1107 »

One possible trick is to take a 401k loan and invest the money in taxable to avoid the fees. This allows you to reserve the space, but not pay the fees. You need to research the details of the plan though.
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BoglesRazor
Posts: 65
Joined: Fri Jan 03, 2020 11:02 am

Re: Small Company 401k - Extremely High Fees

Post by BoglesRazor »

I work for a small company also and I have a 401K (Roth as well) with high fees. However, I found the cheapest fee to be the one that the provider makes itself and it happens to be benchmarked against the Russell 1000. I just re-balanced a put 100% into that one fund. You should call the provider and see what options they have. I thought my plan was bad, but yours is even worse if you are getting to 2% in fees!
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