Author Topic: work 401K general maintenance fee question  (Read 447 times)

newloginuser

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work 401K general maintenance fee question
« on: June 04, 2019, 08:54:44 AM »
Hello everyone,

My work recently changed 401k providers. However the new provider discloses a general maintenance fee of $66 per year (or $5.50 per month) for participating in the 401k plan. Note this fee is in addition to the fees associated with whatever funds I choose within my 401k.

I would think this is fairly normal, but I don't remember our last 401k plan mentioning this, but maybe it just wasn't so publicly displayed?

Anyway, I guess my main questions are:

1. Is this fairly typical
2. Should I only contribute up to the company match, or should I max out my 401K with this charge?
I'm not quite sure the best way to figure this out.

Thanks for your help,
« Last Edit: June 04, 2019, 10:07:16 AM by newloginuser »

haflander

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Re: work 401K general maintenance fee question
« Reply #1 on: June 04, 2019, 09:00:23 AM »
My initial reaction is that as long as you actually are getting a company match and the fund options are at least decent, there's no reason not to contribute to get the free match. I do agree that the $66 per year is really frustrating. It's not even the $, it's the principle of the thing...Others will chime in with more intelligent responses, so hold on for those.

Free Money - 5.50 = Slightly Less But Still Free Money

nereo

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Re: work 401K general maintenance fee question
« Reply #2 on: June 04, 2019, 09:42:59 AM »
1) There are a lot of crappy brokerages providing 401(k) options to companies.  They charge (and often obfuscate) fees exactly like the ones you describe because they can, and because most people don't pay attention. It's infuriating, and something I wish Congress would fix by allowing individuals to choose their brokerage rather than being 'locked in' to the one the company has signed up for.  I'm not holding my breath.

2) I would still contribute, absolutely.  As haflander said, $66/year is not enough to turn down free money, as long as your company contributes at least $5.50/mo towards your 401(k) and/or your tax savings is > this amount.  THat is almost certainly the case.

3) (not asked for but I'm including it here).  I'd lobby your HR department to change their brokerages and/or negotiate with the one you have.  IME the person in charge with selecting the 401(k) provider often has absolutely zero idea of these financial issues, so they get a few firms to send out their "wealth advocates" (salesmen) who bring slick documents and a polished presentation about how they will do all the work and blah blah blah.  Often it only takes a few calls from your HR saying "drop this monthly fee or we are going with XXX" to get them to do exactly this.  In the long run managing a portfolio of a few million (easy to do if you've got a company with several dozen employees) will net them more than collecting a bunch of $66 annual fees.  But they'll charge the fee as long as no one complains.

FWIW We had a similar situation and the fee was eliminated after some angry phone calls.

newloginuser

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Re: work 401K general maintenance fee question
« Reply #3 on: June 04, 2019, 10:09:06 AM »
Thank you both @haflander and @nereo , but I think my question my have been confusing. I certainly agree contributing up to the company match is worth it. What I meant was, should I contribute more than the company match?

For example my work offers a 6% match, should I just stop at 6%, or should I contribute as much as possible/up to the limit to max out my 401k or are the fees cost prohibitive from maxing my 401k?

nereo

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Re: work 401K general maintenance fee question
« Reply #4 on: June 04, 2019, 10:50:13 AM »
Thank you both @haflander and @nereo , but I think my question my have been confusing. I certainly agree contributing up to the company match is worth it. What I meant was, should I contribute more than the company match?

For example my work offers a 6% match, should I just stop at 6%, or should I contribute as much as possible/up to the limit to max out my 401k or are the fees cost prohibitive from maxing my 401k?

I believe the Investment Order will address this question

tl;dr - after maxing out your IRA and HSA (if applicable) I'd recommend maxing out your 401(k) next **unless** your choices or fees are aggregiously high (i.e. assuming you are at "step 5").  Since you will have already paid the $66/yr fee, the only questions left are whether they offer low-cost index funds that suit your investing strategy.

EvenSteven

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Re: work 401K general maintenance fee question
« Reply #5 on: June 04, 2019, 11:24:19 AM »
Hello everyone,

My work recently changed 401k providers. However the new provider discloses a general maintenance fee of $66 per year (or $5.50 per month) for participating in the 401k plan. Note this fee is in addition to the fees associated with whatever funds I choose within my 401k.

I would think this is fairly normal, but I don't remember our last 401k plan mentioning this, but maybe it just wasn't so publicly displayed?

Anyway, I guess my main questions are:

1. Is this fairly typical
2. Should I only contribute up to the company match, or should I max out my 401K with this charge?
I'm not quite sure the best way to figure this out.

Thanks for your help,

Not only is it typical, as far as I know it is universal. I have never heard of a zero fee 401K or 403B. Sometimes the employer picks up the cost, but there is always some administration fee. 66 Bucks per year stinks if you have 10,000 in the plan, but it is awesome if you have 500K.

My 403b with TIAA charges somewhere between 0.4 and 0.5 percent AUM per year.

What Nereo said about part 2 or your question.

Cromacster

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Re: work 401K general maintenance fee question
« Reply #6 on: June 04, 2019, 01:14:31 PM »
Through my provider we pay about %0.1 of AUM annually.

It's not terrible, but our current 401k provider was just acquired by another.  So we'll see how it looks after the switch over.

newloginuser

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Re: work 401K general maintenance fee question
« Reply #7 on: June 04, 2019, 01:43:39 PM »
So it's just an investment order question and the fee isn't particularly relevant, thank you for clarifying this for me. I appreciate the help.