Sorry to hear about your sucky 401(k) options. a 1.2% fee is no fun, although it should be said that there are far worse plans out there, including ones that have front-loaded fees and annual administrative fees in the 2% range.
To address some of the things you said in your post:
Yes, the big advantage of a 401(k) is that it lowers your taxable income now, it grows tax-free every year (no annual capitol gains tax) and then it is only taxed when you withdraw funds later. Because you lower your tax bill now with the last-dollar-earned, and pay taxes on the first-dollar-withdrawn, it's almost always a smart move.
You can also use your 401(k) to do a "Mega-backdoor Roth," which allows you to contribute up to $35k extra to your ROTH IRA every year. Read about it here:
http://www.madfientist.com/after-tax-contributions/"What are my other options"A: Health Savings Accounts. Check them out:
http://www.madfientist.com/hsa/
Finally, I'd call your HR department and complain about your poor 401(k) options, and tell them you'd like a low-cost index fund that tracks either the total market or the SP500. Seriously, most HR departments have
no idea and just go with whatever options some broker sells them. Very often there are low-cost index options available, but the broker that your work goes through often won't tell your company that because they make less money selling them.
Good for you for seeing the light at age 32. Feel free to post a case-study when you are ready for more help and some friendly face-punches.
N