Author Topic: Do these 401k fees seem high?  (Read 5698 times)

Cognitive Miser

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Do these 401k fees seem high?
« on: August 18, 2015, 11:20:27 PM »
New here... I've been lurking for a while, but I want to make some moves if I'm not on the right track, and I need advice!

I work for a smallish company and have been putting just 10% of my salary into their 401k because I thought the fees were high.  I'm using a life-cycle fund with 0.91% fees (total).  My company matches contributions up to 1.5% and then dumps in a big chunk from profit-sharing each April, usually around 10% of salaries.

I am a former federal employee, straight out of college, and started contributing to the TSP right away.  That's my only prior employment so TSP is all I've known until now.  My Roth is with Vanguard, although now that I am married I cannot contribute to it anymore (my SO makes more than I do).

So yeah, 0.91% is high compared to the TSP and Vanguard, but would anyone here flinch at that rate?

MDM

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Re: Do these 401k fees seem high?
« Reply #1 on: August 19, 2015, 12:04:28 AM »
Depends how long you plan to stay there.  To quantify "bad 401k fees vs. taxable", consider using the "401k vs Taxable" tab on the case study spreadsheet

There is a "rule of thumb" in the Bogleheads' 401k wiki entry: ''consider investing in a taxable account if the product of the extra costs and the number of years you will stay in the plan exceeds 30%."  Unfortunately the conditions under which that rule is appropriate aren't given, so caveat user

The Bogleheads wiki also links to http://thefinancebuff.com/alternatives-to-a-high-cost-401k-or-403b-plan.html, from which one can access an online evaluation tool.  The linked article was written in 2008, when things such as backdoor Roths weren't in use.  The online evaluation tool doesn't allow one to see calculation details, but it and the case study spreadsheet match exactly for traditional 401k and taxable account calculations over a variety of inputs.  Ease of use is in the eye of the beholder, so use whatever is easiest for you.

Regarding your Roth, see http://www.bogleheads.org/wiki/Backdoor_Roth_IRA.

milesdividendmd

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Re: Do these 401k fees seem high?
« Reply #2 on: August 19, 2015, 12:16:24 AM »
What other fund options do you have in your plan?  Is your fund the cheapest offered?

If so that is very expensive.

Roots&Wings

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Re: Do these 401k fees seem high?
« Reply #3 on: August 19, 2015, 06:18:10 AM »
So yeah, 0.91% is high compared to the TSP and Vanguard, but would anyone here flinch at that rate?

The target date funds in my 401k have expense ratios of 1.28%. The index funds (small, mid, and large cap) are 0.55% - 0.6%. What index funds do you have available and fees?

innerscorecard

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Re: Do these 401k fees seem high?
« Reply #4 on: August 19, 2015, 06:47:10 AM »
James Altucher is right about 401(1)ks, in that the advice to just uncritically invest as much as you can into them is wrong. You have to look at it on a case by case basis.

For you, I would invest up to the match but no more.

Cognitive Miser

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Re: Do these 401k fees seem high?
« Reply #5 on: August 19, 2015, 10:24:46 PM »
What other fund options do you have in your plan?  Is your fund the cheapest offered?

There is an overall administrative expense of 0.41% for all funds.

There are five funds to choose from, and each has its own additional operating expense:
All Stocks Managed Portfolio at 0.3%
Aggressive Managed Portfolio at 0.5%
Moderate Managed Portfolio at 0.54%
Conservative Managed Portfolio at 0.55%
Cash Equivalent Money Market Fund at 0.64%  (Why this Cash Equivalent fund is so expensive to manage is beyond me...)

I'm in my late thirties, and I've been using the Aggressive Managed Portfolio.  I could switch to the All Stocks.  The historical returns have not been that much higher (as compared to the difference in returns from the more conservative funds.)

Cognitive Miser

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Re: Do these 401k fees seem high?
« Reply #6 on: August 19, 2015, 10:37:57 PM »
There is a "rule of thumb" in the Bogleheads' 401k wiki entry: ''consider investing in a taxable account if the product of the extra costs and the number of years you will stay in the plan exceeds 30%."  Unfortunately the conditions under which that rule is appropriate aren't given, so caveat user

The Bogleheads wiki also links to http://thefinancebuff.com/alternatives-to-a-high-cost-401k-or-403b-plan.html, from which one can access an online evaluation tool.

Using the rule of thumb, I'd have to stay with my company for 30+ years to make switching to funding a taxable account make sense.  I have a hard time seeing myself working for ANY company for 30 more years.

The Finance Buff sheet results show that it is most advantageous for me to stay in the 401k.  I had worked that before I posted here, but didn't take time to dig into making sure my inputs were solid.  I reworked it today with better inputs and it's still saying I should fund the 401k.  I'm not sure how long I'll be with my company, but I need to stay two more years to be fully vested in my employer's contributions (I'm at 60% now).  It's gonna be a close one.  I'd like to be having baby #2 by then, and at that point I may decide to become a SAHM.  I worked the spreadsheet linked on the Case Study forum (again, sketchy preliminary numbers) and it shows we are 8 years (or less) from FI, so SAHM is a decision I'd feel comfortable making.  But I'm an older mom, so there is no guarantee there will be a baby #2.

Most interesting to me was the result that for my situation, Taxable beats Trad IRA.  I wasn't expecting that.

MDM

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Re: Do these 401k fees seem high?
« Reply #7 on: August 19, 2015, 10:51:45 PM »
Most interesting to me was the result that for my situation, Taxable beats Trad IRA.  I wasn't expecting that.

Just curious: Where did Roth fall in the ranking?  What assumptions did you make for the entries below?

Marginal ordinary tax rate at contributiona
Extra fee in the 401k accountb
Marginal ordinary tax rate at withdrawale
Total pre-tax return in the taxable accounti
Number of years in the 401k accountn
Tax rate on LTCG at taxable withdrawalw
Investment taxable yield (if in taxable account)y
Tax rate on annual investment returnsz
Years from now until withdrawalm
Original amount availableP $5,000

Cognitive Miser

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Re: Do these 401k fees seem high?
« Reply #8 on: August 20, 2015, 12:11:00 AM »
Just curious: Where did Roth fall in the ranking?  What assumptions did you make for the entries below?
Roth was the best alternative.  Let's see if this attachment thingy works...

Frs1661

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Re: Do these 401k fees seem high?
« Reply #9 on: August 20, 2015, 01:42:14 AM »

....
Most interesting to me was the result that for my situation, Taxable beats Trad IRA.  I wasn't expecting that.


The image you posted shows that a taxable account beats a non-deductable traditional IRA, which is not surprising. You're paying income tax on both ends.


Sent from my Nexus 4 using Tapatalk

MDM

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Re: Do these 401k fees seem high?
« Reply #10 on: August 20, 2015, 10:51:13 AM »
....
Most interesting to me was the result that for my situation, Taxable beats Trad IRA.  I wasn't expecting that.
The image you posted shows that a taxable account beats a non-deductable traditional IRA, which is not surprising. You're paying income tax on both ends.

According to both the web site and the spreadsheet, your best option is the traditional 401k.

Trudie

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Re: Do these 401k fees seem high?
« Reply #11 on: August 21, 2015, 02:48:45 PM »
I administer our company's 401K plan and the fees you pay are what I would call "typical."

I would consider any index funds or EFTs that are available to you.  If your 401K allows you to have a brokerage window, this may give you more options to invest in EFTs.

Finally, all 401K plans must now disclose fees annually to the participants.  Ask for this information, then "follow the money."  Many fees are buried, and when you start adding them up it's not uncommon for your 401K to be skimming 1.25-1.5% of returns right off the top.

I would make sure you're at least investing enough to get the full match.  Beyond that -- especially if you don't have other pretax options available to you -- I would invest up to the max.  Read the rules on deductible IRAs on the IRS website to see if you can fully deduct your IRA contributions.  If this is an option for you, it might be beneficial to contribute to a traditional IRA on your own, take the deduction, and invest in something with super low fees (Vanguard).  Just make sure you don't go over the contribution limits.

Cognitive Miser

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Re: Do these 401k fees seem high?
« Reply #12 on: August 25, 2015, 11:01:02 PM »
I would consider any index funds or EFTs that are available to you.  If your 401K allows you to have a brokerage window, this may give you more options to invest in EFTs.

Just the five "index" funds I listed above.  They are described as "custom indices" and the tickers listed generate zero hits on a search engine.

Finally, all 401K plans must now disclose fees annually to the participants.  Ask for this information, then "follow the money."  Many fees are buried, and when you start adding them up it's not uncommon for your 401K to be skimming 1.25-1.5% of returns right off the top.

Yep, I got the fees described above from our annual disclosure statement.  Handy, that!

Cognitive Miser

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Re: Do these 401k fees seem high?
« Reply #13 on: August 25, 2015, 11:08:17 PM »
The image you posted shows that a taxable account beats a non-deductable traditional IRA, which is not surprising. You're paying income tax on both ends.

I was trying to grok this, and I think what it is, is that in a traditional IRA your earnings are taxed as regular income while in a taxable account they are taxed as capital gains, which appears to always be lower.  The example provided on The Finance Buff website shows the TIRA beating the taxable - I didn't initially catch the differing assumptions.  I think the example is run with a higher capital gains rate.

 

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