Employer 401(k) expense ratios

[frogstomp81]

I just checked the expense ratios on the funds offered by my employer's 401(k) They range from .71%-1.31%. How does this compare with other 401(k) plans out there? I get a 6% match, and am wondering if I should stick with the plan funds, or opt into the self-directed plan which would allow me to invest in a much wider array of options at the commissions below. I would also be required to maintain 30% of my balance in funds offered in my employer's 401(k) and be subject to a $75.00 annual "Self-Directed Account Service Fee"

STOCKS
$24.95 for the first 1,000 shares plus $.03 for each additional share.
Minimum: $24.95 per trade, Maximum: 5% of principal for market orders subject to the minimum
Executed Limit Orders/Stop Orders: $5.00

NO-LOAD MUTUAL FUNDS
Service Fee per transaction is $34.00. This fee applies to the purchase and redemption of funds.
NO LOAD, NO TRANSACTION FEE FUNDS
No charge (for purchase or sales)
LOAD MUTUAL FUNDS
Please read the prospectus for all sales loads and/or redemption fees

[Frankies Girl]

You might want to blur or otherwise crop out your name and personal info and the menu bar details in that image. ;)

If you are getting a 6% match, I'd look at the lowest cost funds available (can't see what they actually are as the names of the funds are cut off?) and put in at least enough to get the maximum match. That is free money.

I have my 401k through Fidelity and was lucky enough to get their Spartan total stock market fund that has a .07% expense fund, but there were about 40 choices with varying expense ratios ranging from .07 - 1.10%.

I'm not familiar with going self-directed, but it looks to me if you go with this option for this, it would be charging you way more than the expense ratio savings would be worth - a $75 yearly fee, and if you get paid twice monthly (and buying stocks or mutual funds with the 401k contribution from each paycheck) that would be in most cases 26 transaction fees - not sure what that would equal out to in the case of the stocks since that's rated according to the shares themselves, but on the mutual funds, that would be almost $900 more a year and then add int the "account service fee" and you're looking at paying out $1,000+ just in fees and that's not counting the actual funds' expense ratios themselves... doesn't sound like a good deal. (there is a "NO LOAD, NO TRANSACTION FEE FUND" mentioned, but no idea what is offered, so if it does have decent funds available, it might be worth the $75 yearly fee)

If you are planing on FIRE, then once you leave this company, you can roll your 401k to an IRA at someplace like Vanguard or Fidelity and invest in anything that you want at that point. So to me, it would make sense to investigate the best low-cost funds available in your plan that fits your asset allocation, and go hard in those now (working on maxing it out).

[milesdividendmd]

Nothing is more frustrating to me than crappy 401K plans.

If I ran the country individuals would be able to roll over their 401Ks into a self directed investment account once a year.

There is just so much room for graft and corruption on the part of plan administrators/brokers.


That being said you should almost always find the lowest cost index fund offered and max out your contributions.

[NewStachian]

I have Principal and they're not too bad. I haven't done the self-directed option, but they have decent large and mid cap funds with 0.18% ratios which is okay to me. Their international is a bit higher at about 0.9-1.0% range, but that's not too terrible for international and it's only 15%-20% of my portfolio.

[Zaga]

My DH has a crappy plan, the lowest cost fund has a 1.41% ER.  Despite that, we save our 25% tax rate, so it's still worth it to put in the maximum.  Besides, like most IT workers these days he doesn't expect to be with this employer for the long haul; when he moves on we will roll that over to the low cost IRA he already has that contains 2 other 401-K rollovers.

The break even point is something like 15 years, paying that expense ratio for the short term is worth it for the short term to get the tax deduction.

[frogstomp81]

Thank you all for your input and advice. I guess I will stay with the plan funds and try to minimize the expense ratios. My only other thought is that since I have to maintain 30% of my money in core plan funds anyway, according to the self-directed plan rules, and I could invest in almost anything with the rest(other than: Foreign stocks, non-listed limited partnerships, commodities, futures, options, non-taxable investments, precious metals, stock in your company or its affiliates, and IPOs) I could save money up in the core plan funds with the lowest expense ratios and make larger less frequent transfers to a the self-directed plan and funds with better expense ratios, thus saving on the commissions. Though I know this would not be the best dollar-cast-averaging, and I would still be subject to the $75.00 account maintenance fee. Sorry if this is a non-nonsensical thought, but I don't know exactly how to figure out if it would make sense mathematically.

[Zaga]

Thank you all for your input and advice. I guess I will stay with the plan funds and try to minimize the expense ratios. My only other thought is that since I have to maintain 30% of my money in core plan funds anyway, according to the self-directed plan rules, and I could invest in almost anything with the rest(other than: Foreign stocks, non-listed limited partnerships, commodities, futures, options, non-taxable investments, precious metals, stock in your company or its affiliates, and IPOs) I could save money up in the core plan funds with the lowest expense ratios and make larger less frequent transfers to a the self-directed plan and funds with better expense ratios, thus saving on the commissions. Though I know this would not be the best dollar-cast-averaging, and I would still be subject to the $75.00 account maintenance fee. Sorry if this is a non-nonsensical thought, but I don't know exactly how to figure out if it would make sense mathematically.

Well an expense ratio of 0.71 will cost you $71 a year for a $10,000 investment.  If you are investing less than that in the brokerage account, then you are losing money and are actually better off just sticking with the cheapest core plan fund.

Stick with the KISS principle for now I think.

[frogstomp81]

Hahaha! Guess I should have put some thought into it before posting that. Even a dumb-ass like me can do that math. Thanks for the post Zaga!

[Zaga]

Happy to be your second pair of eyes :-)