What is considered a “high fee’s” in a 401k?

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Jesteroftheswamp
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What is considered a “high fee’s” in a 401k?

Post by Jesteroftheswamp »

When one is looking at the way their 401K plan is structured, or really any retirement account for that matter, what are some good rules of thumb that differentiate high fees from low fees? I’ve heard .8% is high, but not sure, as I have no real basis for comparison or way to determine that. What should one keep in mind when analyzing fees and expense ratios?
qwertyjazz
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Re: What is considered a “high fee’s” in a 401k?

Post by qwertyjazz »

It comes down to comparison and what is available. In the 1970’s, 0.5% for a passive SP 500 was a great fee. The lower the fee the better. Nowadays 0.05 to 0.1 is reasonable, but not all plans have something that low. You should ignore plus or minus a couple of basis points (0.01%)
If you want to see the effect of compounding, use a calculator and do the math over 20-40 years of percent different. X years at 1.008 etc
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Nate79
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Re: What is considered a “high fee’s” in a 401k?

Post by Nate79 »

Jesteroftheswamp wrote: Sat May 01, 2021 11:41 am When one is looking at the way their 401K plan is structured, or really any retirement account for that matter, what are some good rules of thumb that differentiate high fees from low fees? I’ve heard .8% is high, but not sure, as I have no real basis for comparison or way to determine that. What should one keep in mind when analyzing fees and expense ratios?
What is the purpose of the analysis? Are you deciding whether to use the 401k based on the fees? If so I would consider 1.5% high. Are you choosing between two funds? Choose the lower ER fund. Are you comparing to someone else's 401k? Who cares, it doesn't matter unless you plan to lobby your management for a lower cost plan.
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FiveK
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Re: What is considered a “high fee’s” in a 401k?

Post by FiveK »

The Expensive or mediocre choices section of the 401(k) wiki describes one way to evaluate this.
acegolfer
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Re: What is considered a “high fee’s” in a 401k?

Post by acegolfer »

Jesteroftheswamp wrote: Sat May 01, 2021 11:41 am what are some good rules of thumb that differentiate high fees from low fees?
I haven't heard any rules of thumb. But personally, anything >0.15% ER is high.
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jeffyscott
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Re: What is considered a “high fee’s” in a 401k?

Post by jeffyscott »

Is the 0.8% an administrative fee for the 401K or the expense ratio of a mutual fund that is offered in the 401K?

Either way it is high, but if it is an administrative fee, then there is no way to avoid it by picking a lower ER mutual fund.

For someone in the 0% or 15% tax bracket for QDI, I would think that it likely not worth contributing beyond the match, if the cost is 0.8% (depending on how long the money will have to stay in the plan, of course). With stock dividends of 1.5%, the annual federal income tax would be 0.225%, you would have to add the effect of state income tax to that, but to get up to 0.8% would require a 53% combined tax rate. Then on top of that the capital gains in the 401K would be ultimately be taxed at a higher rate.
FiveK wrote: Sat May 01, 2021 1:26 pmThe Expensive or mediocre choices section of the 401(k) wiki describes one way to evaluate this.
But I must be missing something since the example there says that if you pay 1.70% expenses rather than 0.20%, and you pay 15% federal tax on qualified dividends, plus 5% state tax, you should still invest in the plan unless you are reasonably certain that you will stay with the employer for more than 20 years. I don't see how you would come out ahead paying 1.5% per year in extra expenses vs. paying 20% tax on dividends. The dividends would have to be 7.5% in order for the 20% tax cost to be equal to the 1.5% per year.
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Re: What is considered a “high fee’s” in a 401k?

Post by YeahBuddy »

My 403b holdings range from 0.02% to 0.09%. I consider anything over 0.2% a high fee.
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ClevrChico
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Re: What is considered a “high fee’s” in a 401k?

Post by ClevrChico »

I like to research 401k's on :

https://www.brightscope.com/

It gives a clear score among peer companies and shows you how many "extra years of work" you have to do to overcome fees.
Last edited by ClevrChico on Mon May 03, 2021 3:23 pm, edited 1 time in total.
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FiveK
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Re: What is considered a “high fee’s” in a 401k?

Post by FiveK »

jeffyscott wrote: Sun May 02, 2021 7:18 am
FiveK wrote: Sat May 01, 2021 1:26 pmThe Expensive or mediocre choices section of the 401(k) wiki describes one way to evaluate this.
But I must be missing something since the example there says that if you pay 1.70% expenses rather than 0.20%, and you pay 15% federal tax on qualified dividends, plus 5% state tax, you should still invest in the plan unless you are reasonably certain that you will stay with the employer for more than 20 years. I don't see how you would come out ahead paying 1.5% per year in extra expenses vs. paying 20% tax on dividends. The dividends would have to be 7.5% in order for the 20% tax cost to be equal to the 1.5% per year.
See [Wiki suggestion] Invest in taxable or 401(k)? for some background.

See also Alternatives to a High Cost 401k Or 403b Plan and the '401k vs Taxable' tab in the personal finance toolbox for two different tools that return the same answers.

Note that the "rule of thumb" in the wiki is just that - an approximation that will be "in the ballpark" for common situations. One could use either of the tools in the previous paragraph, or the tool grabiner mentions in the forum thread, to get a more precise answer. Of course, the accuracy of any answer will depend on the accuracy of the assumptions.... ;)
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Jesteroftheswamp
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Re: What is considered a “high fee’s” in a 401k?

Post by Jesteroftheswamp »

Nate79 wrote: Sat May 01, 2021 1:21 pm
Jesteroftheswamp wrote: Sat May 01, 2021 11:41 am When one is looking at the way their 401K plan is structured, or really any retirement account for that matter, what are some good rules of thumb that differentiate high fees from low fees? I’ve heard .8% is high, but not sure, as I have no real basis for comparison or way to determine that. What should one keep in mind when analyzing fees and expense ratios?
What is the purpose of the analysis? Are you deciding whether to use the 401k based on the fees? If so I would consider 1.5% high. Are you choosing between two funds? Choose the lower ER fund. Are you comparing to someone else's 401k? Who cares, it doesn't matter unless you plan to lobby your management for a lower cost plan.
Currently considering a FIdelity 401K with new employer. No employer match until January 2022 (hopefully.) Expense ration is .12 and also has a recordkeeping fee of 0.14% of assets annually. Any feedback you can provide on this?
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FiveK
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Re: What is considered a “high fee’s” in a 401k?

Post by FiveK »

Jesteroftheswamp wrote: Wed May 05, 2021 6:20 pm Currently considering a FIdelity 401K with new employer. No employer match until January 2022 (hopefully.) Expense ration is .12 and also has a recordkeeping fee of 0.14% of assets annually. Any feedback you can provide on this?
Higher than you would pay in an IRA, but probably still better than taxable.
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Jesteroftheswamp
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Re: What is considered a “high fee’s” in a 401k?

Post by Jesteroftheswamp »

FiveK wrote: Wed May 05, 2021 6:24 pm
Jesteroftheswamp wrote: Wed May 05, 2021 6:20 pm Currently considering a FIdelity 401K with new employer. No employer match until January 2022 (hopefully.) Expense ration is .12 and also has a recordkeeping fee of 0.14% of assets annually. Any feedback you can provide on this?
Higher than you would pay in an IRA, but probably still better than taxable.
I've got a call with the IRA dude on Friday, so that may be an option as well.

Ultimately I am asking this question because I don't plan on being with this employer for long, and wonder if it's worth having another 401K account at the moment.
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FiveK
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Re: What is considered a “high fee’s” in a 401k?

Post by FiveK »

Jesteroftheswamp wrote: Wed May 05, 2021 6:32 pm I've got a call with the IRA dude on Friday, so that may be an option as well.

Ultimately I am asking this question because I don't plan on being with this employer for long, and wonder if it's worth having another 401K account at the moment.
See Investment Order and Prioritizing investments for some thoughts on your situation.
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Re: What is considered a “high fee’s” in a 401k?

Post by Nate79 »

Jesteroftheswamp wrote: Wed May 05, 2021 6:20 pm
Nate79 wrote: Sat May 01, 2021 1:21 pm
Jesteroftheswamp wrote: Sat May 01, 2021 11:41 am When one is looking at the way their 401K plan is structured, or really any retirement account for that matter, what are some good rules of thumb that differentiate high fees from low fees? I’ve heard .8% is high, but not sure, as I have no real basis for comparison or way to determine that. What should one keep in mind when analyzing fees and expense ratios?
What is the purpose of the analysis? Are you deciding whether to use the 401k based on the fees? If so I would consider 1.5% high. Are you choosing between two funds? Choose the lower ER fund. Are you comparing to someone else's 401k? Who cares, it doesn't matter unless you plan to lobby your management for a lower cost plan.
Currently considering a FIdelity 401K with new employer. No employer match until January 2022 (hopefully.) Expense ration is .12 and also has a recordkeeping fee of 0.14% of assets annually. Any feedback you can provide on this?
I would max out an IRA first then use the 401k. I start to worry for a 401k ER >1% and would use a taxable account for >1.5% ER. Your expenses are very low.
index2max
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Re: What is considered a “high fee’s” in a 401k?

Post by index2max »

My 401k plan has only a $73/year fee to use the plan and pick from the index funds. I'd be ticked off to have a plan that charges me a percentage of my investments because I'd be punished for saving more.

I like flat-fee 401k plans
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Re: What is considered a “high fee’s” in a 401k?

Post by TimRCM »

My 401k’s S&P fund is 0.28% and my only international choice is 0.7%. I consider that very high and only contribute to the match as a result, instead focusing on my HSA, IRA, and even taxable.
Last edited by TimRCM on Sun Jun 13, 2021 12:09 am, edited 1 time in total.
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Re: What is considered a “high fee’s” in a 401k?

Post by jeffyscott »

index2max wrote: Wed May 05, 2021 10:58 pm My 401k plan has only a $73/year fee to use the plan and pick from the index funds. I'd be ticked off to have a plan that charges me a percentage of my investments because I'd be punished for saving more.

I like flat-fee 401k plans
My former 457 had a tiered fee structure with increasing fees for more assets, but not a percentage. I was in the highest tier and had to pay about $200 per year, but at least it did not keep increasing as account balance increased.

For the smallest accounts hey had fees of $0 and $12 per year. I complained about being forced to subsidize all the small account holders, after learning that about half of the accounts were in those two smallest tiers. Most of my money left there after retirement, partly due to the fees. I left a small amount in the free tier :twisted: which preserves my ability to roll money back into the account.
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Re: What is considered a “high fee’s” in a 401k?

Post by index2max »

jeffyscott wrote: Thu May 06, 2021 7:47 am
index2max wrote: Wed May 05, 2021 10:58 pm My 401k plan has only a $73/year fee to use the plan and pick from the index funds. I'd be ticked off to have a plan that charges me a percentage of my investments because I'd be punished for saving more.

I like flat-fee 401k plans
My former 457 had a tiered fee structure with increasing fees for more assets, but not a percentage. I was in the highest tier and had to pay about $200 per year, but at least it did not keep increasing as account balance increased.

For the smallest accounts hey had fees of $0 and $12 per year. I complained about being forced to subsidize all the small account holders, after learning that about half of the accounts were in those two smallest tiers. Most of my money left there after retirement, partly due to the fees. I left a small amount in the free tier :twisted: which preserves my ability to roll money back into the account.
That's kind of a silly system. Should be spread out evenly.

Would love to know if my company's 401k plan with Principal has the cheapest annual fees for the ability to buy and hold index funds of anyone out there.
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ClevrChico
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Re: What is considered a “high fee’s” in a 401k?

Post by ClevrChico »

index2max wrote: Thu May 06, 2021 8:01 am
jeffyscott wrote: Thu May 06, 2021 7:47 am
index2max wrote: Wed May 05, 2021 10:58 pm My 401k plan has only a $73/year fee to use the plan and pick from the index funds. I'd be ticked off to have a plan that charges me a percentage of my investments because I'd be punished for saving more.

I like flat-fee 401k plans
My former 457 had a tiered fee structure with increasing fees for more assets, but not a percentage. I was in the highest tier and had to pay about $200 per year, but at least it did not keep increasing as account balance increased.

For the smallest accounts hey had fees of $0 and $12 per year. I complained about being forced to subsidize all the small account holders, after learning that about half of the accounts were in those two smallest tiers. Most of my money left there after retirement, partly due to the fees. I left a small amount in the free tier :twisted: which preserves my ability to roll money back into the account.
That's kind of a silly system. Should be spread out evenly.

Would love to know if my company's 401k plan with Principal has the cheapest annual fees for the ability to buy and hold index funds of anyone out there.
You could see the rating here:

https://www.brightscope.com/
iskey
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Re: What is considered a “high fee’s” in a 401k?

Post by iskey »

Jesteroftheswamp wrote: Wed May 05, 2021 6:32 pm
FiveK wrote: Wed May 05, 2021 6:24 pm
Jesteroftheswamp wrote: Wed May 05, 2021 6:20 pm Currently considering a FIdelity 401K with new employer. No employer match until January 2022 (hopefully.) Expense ration is .12 and also has a recordkeeping fee of 0.14% of assets annually. Any feedback you can provide on this?
Higher than you would pay in an IRA, but probably still better than taxable.
I've got a call with the IRA dude on Friday, so that may be an option as well.

Ultimately I am asking this question because I don't plan on being with this employer for long, and wonder if it's worth having another 401K account at the moment.
If you're not planning on being with your employer for long then you could possibly hold off. Explore the IRA route on your own if you feel comfortable doing that, I would avoid an "IRA dude".
Last edited by iskey on Thu May 06, 2021 9:45 am, edited 1 time in total.
weirdsong1
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Re: What is considered a “high fee’s” in a 401k?

Post by weirdsong1 »

All 401k's have high fees, by definition. The 401k is such a bizarre system. Most 401k accounts only work for buy and hold strategies, and of course don't encourage lots of trading. So the idea of charging percentage (or large flat) fees for a low maintenance brokerage account (with very limited options) is positively primitive. It took me 4 years of lobbying to get VFIAX into our company's offerings...currently the only fund with an EV under 0.7%. It still blows my mind that there was resistance to a passive S&P index.
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jeffyscott
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Re: What is considered a “high fee’s” in a 401k?

Post by jeffyscott »

iskey wrote: Thu May 06, 2021 9:30 am
Jesteroftheswamp wrote: Wed May 05, 2021 6:32 pm
FiveK wrote: Wed May 05, 2021 6:24 pm
Jesteroftheswamp wrote: Wed May 05, 2021 6:20 pm Currently considering a FIdelity 401K with new employer. No employer match until January 2022 (hopefully.) Expense ration is .12 and also has a recordkeeping fee of 0.14% of assets annually. Any feedback you can provide on this?
Higher than you would pay in an IRA, but probably still better than taxable.
I've got a call with the IRA dude on Friday, so that may be an option as well.

Ultimately I am asking this question because I don't plan on being with this employer for long, and wonder if it's worth having another 401K account at the moment.
If you're not planning on being with your employer for long then you could possibly hold off. Explore the IRA route on your own if you feel comfortable doing that, I would avoid an "IRA dude".
Not being with the employer long would actually be a reason to contribute, since it can rolled over to an IRA upon leaving, you won't be paying the extra expense for long. But with no match, it would make sense to fill up the IRA first and then contribute to the 401K, if you want to save more than the $6000 (or $7000) IRA limit.
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Re: What is considered a “high fee’s” in a 401k?

Post by mc2 »

viewtopic.php?f=2&t=344278&p=5906386#p5906386

This is a great topic and I think there is much to be gained by a global movement of better fees for the participants. My thread above was not well-addressed. I find it absolutely odd that so few Bogleheads can actually state what their fees are-rather, they talk about fund ERs and defend the costs of the plan.

For me, I'd like to see plan admin fees less than 0.5% and index fund offerings with ERs less than 0.1%. These fees are not outrageous benchmarks. It's insane that some funds are offered with 1.7%ERs, my original 401k had front loaded fidelity funds with a 5.75% front load!

C'mon Bogleheads-cough up your fees so we can get some traction on this!
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Re: What is considered a “high fee’s” in a 401k?

Post by index2max »

ClevrChico wrote: Thu May 06, 2021 8:04 am
index2max wrote: Thu May 06, 2021 8:01 am
jeffyscott wrote: Thu May 06, 2021 7:47 am
index2max wrote: Wed May 05, 2021 10:58 pm My 401k plan has only a $73/year fee to use the plan and pick from the index funds. I'd be ticked off to have a plan that charges me a percentage of my investments because I'd be punished for saving more.

I like flat-fee 401k plans
My former 457 had a tiered fee structure with increasing fees for more assets, but not a percentage. I was in the highest tier and had to pay about $200 per year, but at least it did not keep increasing as account balance increased.

For the smallest accounts hey had fees of $0 and $12 per year. I complained about being forced to subsidize all the small account holders, after learning that about half of the accounts were in those two smallest tiers. Most of my money left there after retirement, partly due to the fees. I left a small amount in the free tier :twisted: which preserves my ability to roll money back into the account.
That's kind of a silly system. Should be spread out evenly.

Would love to know if my company's 401k plan with Principal has the cheapest annual fees for the ability to buy and hold index funds of anyone out there.
You could see the rating here:

https://www.brightscope.com/
Thanks, I’ll take a look!
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FiveK
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Re: What is considered a “high fee’s” in a 401k?

Post by FiveK »

weirdsong1 wrote: Thu May 06, 2021 9:40 am All 401k's have high fees, by definition.
I suppose it is subjective, but the $25/yr flat fee plus 0.01% ER on the S&P 500 and 0.10% ER on an international index that Megacorp charges us don't seem "high"....
hnd
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Re: What is considered a “high fee’s” in a 401k?

Post by hnd »

we play a flat .5% on our plan with Human Interest.

a bunch of office administration have accounts at Fidelity and began to look at it, but for a firm our size, the admin fees are abhorrent comparitively.
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Re: What is considered a “high fee’s” in a 401k?

Post by wetgear »

weirdsong1 wrote: Thu May 06, 2021 9:40 am All 401k's have high fees, by definition. The 401k is such a bizarre system. Most 401k accounts only work for buy and hold strategies, and of course don't encourage lots of trading. So the idea of charging percentage (or large flat) fees for a low maintenance brokerage account (with very limited options) is positively primitive. It took me 4 years of lobbying to get VFIAX into our company's offerings...currently the only fund with an EV under 0.7%. It still blows my mind that there was resistance to a passive S&P index.
This is not accurate. There are some high ER options in my 401k but I can get an index based target date fund for 0.06% or build a 3 fund portfolio with ERs of 0.025, 0.04, & 0.1. While not all plans out there are this good many are so saying they have "high fees, by definition" just isn't true.
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