Author Topic: include 457b fees in Expense Ratio?  (Read 1180 times)

bortman

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include 457b fees in Expense Ratio?
« on: December 04, 2016, 09:38:05 AM »
background: When I started contributing to a 457b I put all contributions into a Vanguard target fund (VITFX) with an expense ratio of 0.10%. It was only after learning about MMM that I started thinking about ER. I quickly I moved my 457b money from VITFX to VIIIX, which has an expense ratio of 0.02%. I also have 403b and a post-tax Vanguard accounts, so I get my desired stock/bond across all of these.

Recently, the 457b's fees went up, and this got me wondering about "rolling" the plan's fees into VIIIX's expense ratio as an easier metric for the overall expense of this investment.

These are the fees:
BalanceMonthly/Annual Fee
$1 - $5,000$0 / $0
$5,001 - $25,000$1 / $12
$25,001 - $50,000$2.50 / $30
$50,001 - $100,000$5 / $60
$100,001 - $150,000$7 / $84
$150,001 - $250,000$10 / $120
over $250,000$15 / $180

Say I have $35,000 in this account. I could do this on an annual basis to get the my 457b's expense ratio.

($30 / $35,000) x 100 = 0.086%

I'd add that to VIIIX's 0.02% to get an overall 457b ER of 0.106%

Obviously, this would get more complicated if I had other investments in this account, but still easily trackable with a spreadsheet.

Does this make sense? Is there a more practical way to approach this? Finally, am I missing something (i.e. am I weighting things in the wrong directions and my math is off by orders of magnitude)?

seattlecyclone

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Re: include 457b fees in Expense Ratio?
« Reply #1 on: December 04, 2016, 10:11:13 AM »
Sure, I think it's reasonable enough to consider fixed fees as a percentage of assets so that you can see the overall cost of your investment.

This can be a useful tool to help you decide where to put your money when you switch employers. You have institutional class shares in your employer plan, and a separate plan fee. Are your total fees for VIIIX in your employer plan more or less than you would pay if you instead rolled that money into an IRA and bought the Admiral share version of that fund? In your case, it looks like you're paying a total of more than 0.05%, so rolling over might be a good idea if you quit today and if you have no need to make use of the special feature of 457 plans where there's no early withdrawal tax for taking money out at any age.

Anyway you slice it, 0.1% isn't a bad expense ratio by any means, so don't let this number convince you that abandoning the tax advantages of the 457 for a taxable account with slightly lower expenses is a good move. It probably isn't.

bortman

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Re: include 457b fees in Expense Ratio?
« Reply #2 on: December 04, 2016, 11:56:18 AM »
seattlecyclone -- You summarized exactly the reasons why I'm thinking about these numbers. The 457b's "ER" (as I calculate it) is certainly not going to push me to a taxable account.

Thanks for your thoughtful response!