Ask About the 401K fees in Your 401K Program

by Fern LaRocca CFP®

in 401K

If I were to ask you what 401k fees you pay, you would probably say nothing. Well, that’s not true. You are paying something, but it is hidden. The Department of Labor is about to change that. They are requiring that your employer provide you with information concerning the 401(k) fees that you are paying in an easy to understand format. Many people won’t be happy.  They thought they were paying nothing.

Here is how the fees have been hidden all these years:

Annual fee- A small annual fee of $25 or more is added to your account at the beginning or ending of the year. You are paying that to a custodian who takes your contributions and invests it for you according to the investment choices you make.

Higher investment costs- Let’s say ABC mutual fund costs you $25.50 a share to buy in your 401k program but if you bought ABC mutual fund outside of your 401(k) you would be paying $25.25 a share. The difference $.25 is a fee that you pay for that investment choice.

Higher expense ratios- Let’s say ETF fund has a low expense ratio on .50 in your 401(k) plan. That is the amount of fees of the account that goes towards the investment management of ETF Fund and the marketing (quarterly reports, performance statements, etc.) of ETF Fund. You could probably purchase ETF Fund for .10% outside of your 401(k), but the difference is a fee that you pay for the privilege of having to purchase that fund in your 401(k).

Wrap accounts and the brokerage account options can also have additional fees that you will pay in a 401(k) plan that you would not normally pay.  In a wrap account, you pay for access to a professional investment manager who takes a fee which is a percentage of assets under management. There is also an additional percentage (usually anywhere up to an additional 1%) tacked on for the privilege of getting access to that particular investment manager or sometimes called a marketing fee.


Next time you need information about retirement and open up your 401K statement, look for those fees. Soon it will be stated clearly what you have been paying. In a bull market, it is easy to dismiss such fees but when the market is down, it can make losses even larger. Don’t be afraid to speak up to your employer and request that a plan with lower fees be offered. Check with your Financial Advisor or a Wealth Coach to see if your fees are in line with the average.

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