Author Topic: What is considered a high 401K fee?  (Read 2789 times)

merlin7676

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What is considered a high 401K fee?
« on: September 19, 2017, 08:40:35 AM »
Forgive me if this has been addressed before. I couldn't find anything when I did a search.

I see all the time about people talking about high fees with their 401K but I don't see what is considered a "high" fee.

I am enrolled in my work's 401K.  We use Charles Schwab. I'm currently in their Target Date ones.  50% in the JP Morgan Smart retirement 2040 and 50% in the JP Morgan Smart Retirement 2045. I do plan to retire before these dates (2031) but I picked a longer date so I'd be more heavily invested in stocks as opposed to bonds.

They just sent us a fee and investment notice.  Under expenses it says:
   Expenses         
   Operating expenses         
            
                  Gross                           Net   
           as a %   per $1000      as a %   per $1000
            
2040     0.75%   $7.50       0.68%   $6.80
2045           0.77%   $7.70       0.68%   $6.80

I'm not sure what the difference is between Gross and Net as it relates to fees here but I think it sounds like a lot. Especially compared to my VTSAX at Vanguard which is only 0.04% (admiral shares).


I could look into rolling it over to a Vanguard account but I can't do an IRA as my spouse and I make too much for a traditional IRA. So i'd have to roll it over to a Roth IRA and therefore pay taxes yes?  And since I can't use a portion of the amount to pay for it, the taxes would have to be out of pocket.  Without naming a dollar amount, I honestly don't think I could come up with the money to take such a hit of rolling it all over at once. 

Not sure what is the best way to go about this. Any help is appreciated.

thanks.



dandarc

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Re: What is considered a high 401K fee?
« Reply #1 on: September 19, 2017, 08:54:40 AM »
1.  Gross vs. Net - if these are different, this means the fund has some kind of contract that limits the expense ratio.  Since the gross ER is higher, you're effectively getting a discount on the actual fees.  Which is a good thing for now, but usually the guarantees go away at some point, so you may be looking at slightly higher fees down the road.

2.  .75% / .77% expense ratios are somewhat high, but are almost certainly not so high that you'd want to forgo the 401K entirely.  At a high income, the tax benefits are very large, particularly considering that a 401K is not forever.  So don't cut your nose off to spite your face here.  May be worth looking at all of your investment options in the 401K - there may be some cheaper funds available than the target-date funds.

3.  When you say your income is too high for a traditional IRA, how high are we talking?  Certain aspects of your investments are going to be impacted if your income is very high, so if you can give us your income, you can get even more / better advice. 

4.  There are no income limits for a rollover - when you leave your employer, you can roll over to a traditional IRA of your choice with no tax consequences.  Some 401Ks even allow in-service rollovers, which would allow you to get into better funds more immediately.  Worth checking into, but don't hold your breath.  (Edit to Add: In fact, there are no income limits for traditional IRAs at all - only for your ability to deduct contributions.  That's a minor point, since we're specifically talking about a rollover and not new tIRA contributions, but more complete to point that out).

General investing order from MDM, which is good advice for most:
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153
Quote
WHAT           
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund mega backdoor Roth if applicable           
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account with any extra. 
« Last Edit: September 19, 2017, 08:57:55 AM by dandarc »

Aggie1999

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Re: What is considered a high 401K fee?
« Reply #2 on: September 19, 2017, 08:58:16 AM »
Those are high ER's. For comparison, the target date funds in my 401k have an ER of 0.10. My 401k provider does charge an $11.50 quarterly maintenance fee regardless of the account size.

Car Jack

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Re: What is considered a high 401K fee?
« Reply #3 on: September 19, 2017, 11:15:40 AM »
There are lots of things to consider.  For example:

Do you plan to be with this employer forever?  If not, consider the 401k as a way to get money into your IRA eventually when you leave.

Are these the lowest ER funds you have available?  If not and you're trying to do a 3 fund thing inside your 401k, that's a good thought, but just stop.  If this is the only place you have money invested, it doesn't matter what your AA is (that's my made up rule) until you hit $100k.  Look for the absolute lowest ER fund and put all the money there.

Is there a company match?  If not, fill up your Roth IRA first.  Then do the 401k.

MDM

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Re: What is considered a high 401K fee?
« Reply #4 on: September 19, 2017, 01:06:37 PM »
See To 401k or not to 401k? That is the question. for some thoughts on how to approach your question.

ketchup

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Re: What is considered a high 401K fee?
« Reply #5 on: September 19, 2017, 01:08:20 PM »
Mine are over 1% (with fund options that are 2% or more).  Fuck American Funds.

Aunt Petunia

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Re: What is considered a high 401K fee?
« Reply #6 on: September 19, 2017, 02:11:27 PM »
I have a Fidelity 403b with some Vanguard institutional funds at 0.02%

stashing_it

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Re: What is considered a high 401K fee?
« Reply #7 on: September 23, 2017, 12:02:18 AM »
Your target date funds of 2040 and 2045 average out to being 25 years in the future.  At that point I'd recommend forgoing target date and having your retirement money in some broad market index fund.

If you were investing in a non-401k I'd say  60% VTSAX   (us total market)  + 40% non us total market.

Since you're in a 401k with limited choices, pick your best choice.    SP 500 is a decent choice and if you have it will almost certainly have an expense ratio less than .75.

I believe that the target date funds in my 401k have ERs between 0.5 - 1.0%,    I'm not sure though, because all I use are SP500 index fund, international index fund, and a small cap index fun all of which have ERs less than 0.07 %

If you really want to more closely match what the target date fund is doing, find out what percentage they have in bonds and put some in the bond index fund.  (You could also do this in an IRA if your 401k doesn't have a bond index fund)

Hargrove

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Re: What is considered a high 401K fee?
« Reply #8 on: September 23, 2017, 12:47:10 PM »
How to tell if your 401k fees suck:

1) Are they higher than 0.1%?

A: Yes
They suck.

A: No.
Are you sure? Go back to step 1.

A "great" 401k fee is going to be several times a great self-directed IRA investment expense ratio.

The huge advantage of 401ks is by far an employer match, but they're not offered by all employers. After that, there's still the advantage of lowering your taxable income, and additional legal protections 401k money enjoys over even IRA funds. However, after you leave your employer, I have never heard of a situation where leaving the money in the 401k was a good idea.

Rollovers aren't traditional IRA contributions, so you're safe rolling it over into a tIRA.

YttriumNitrate

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Re: What is considered a high 401K fee?
« Reply #9 on: September 24, 2017, 08:52:01 AM »
How to tell if your 401k fees suck:
1) Are they higher than 0.1%?
A: Yes
They suck.
Having recently set up a company's 401k plan, expecting fees less than 0.1% is fairly unreasonable for any company with less than 30 people. Even with Employee Fiduciary, one of the lowest cost providers out there, you are looking at fees in the 0.10% to 0.20% range. Going through Vanguard, you can get fees sub 0.1%, but your employer is paying a couple thousand more to Vanguard than they would to Employee Fiduciary for the administrative fees.

My threshold for "high" fees in small company plan would be all the options/funds having total fees over 0.5%. 0.2% to 0.5% would be good, and sub 0.2% is great.

Hargrove

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Re: What is considered a high 401K fee?
« Reply #10 on: September 24, 2017, 09:39:32 AM »
How to tell if your 401k fees suck:
1) Are they higher than 0.1%?
A: Yes
They suck.
Having recently set up a company's 401k plan, expecting fees less than 0.1% is fairly unreasonable for any company with less than 30 people. Even with Employee Fiduciary, one of the lowest cost providers out there, you are looking at fees in the 0.10% to 0.20% range. Going through Vanguard, you can get fees sub 0.1%, but your employer is paying a couple thousand more to Vanguard than they would to Employee Fiduciary for the administrative fees.

My threshold for "high" fees in small company plan would be all the options/funds having total fees over 0.5%. 0.2% to 0.5% would be good, and sub 0.2% is great.

I was really speaking to the question of whether to rollover a 401k into a self-directed IRA. Actually, I'm not sure that's possible though for the OP, because it's a current job. Hm.

But yes, during the time you're actually in the 401k, sub 0.5% is very good, but the moment you change employers and can take it on yourself, you can cut the fees by more than half. Very few employers will let you rollover while staying in your ongoing contributions (I've heard Google has done this).
« Last Edit: September 24, 2017, 09:41:27 AM by Hargrove »