I just realized my 401k charged me about $250 in fees last year, and this doesn’t even include the expense ratios for the index funds I’m holding. It’s just a fee for the 401k provider, based on a percentage of my account balance, which is under $100,000. Why do we just accept these fees? If a Roth IRA or regular brokerage account charged this kind of money, people would be furious. Why is it different for 401ks?
401ks have extra costs like administration, compliance, and regulatory fees. These aren’t as big an issue for IRAs, which is why their fees are lower. Employers either cover part of the cost or pass it on to employees.
$250 on $100k is about 0.25%, which is on the lower side. Smaller companies often have higher fees (sometimes over 1%) because they don’t have the same negotiating power as larger employers.
@Westley
It’s 0.25% if your balance is $100k, but flat fees can be brutal for smaller balances. For someone with $1,000 in their 401k, that $250 would be a 25% fee. Flat fees aren’t ideal for 401k plans.
@Finlo
But a lot of the admin costs don’t depend on the account balance. Preparing quarterly statements or tax forms costs the same for someone with $1,000 as it does for the CEO with $1 million. A flat fee makes sense to cover those expenses.
@Remington
I get your point, but the argument against flat fees is the same as for progressive taxes: those with more money should pay more because they can afford it.
@Westley
Great explanation, thanks! Is there any way to push for lower fees?
Teal said:
@Westley
Great explanation, thanks! Is there any way to push for lower fees?
You’re welcome. Check out this resource. It might help you understand your plan better and see if there’s room to negotiate.
401k fees cover administrative costs, which someone has to pay—either you or your employer. The trade-off is the tax savings and any employer match, which usually outweigh the fees.
Oli said:
401k fees cover administrative costs, which someone has to pay—either you or your employer. The trade-off is the tax savings and any employer match, which usually outweigh the fees.
Why don’t Roth IRAs or regular brokerage accounts have these costs?
@Teal
There’s a lot less admin work involved with individual accounts.
@Teal
401ks are subject to more regulations, like nondiscrimination testing and compliance rules. That adds to the costs compared to IRAs.
@Teal
Competition. 401k providers have a captive audience because you’re stuck with the plan your employer chooses. IRAs are easier to switch, so providers keep fees low to stay competitive.
Lane said:
@Teal
Competition. 401k providers have a captive audience because you’re stuck with the plan your employer chooses. IRAs are easier to switch, so providers keep fees low to stay competitive.
That makes sense, but why stick with this system? Why not allow 401k competition, like with IRAs?
@Teal
Lobbying and entrenched interests. Also, IRA contribution limits are much lower, which doesn’t make sense anymore.
@Teal
401k fees persist because employers often prioritize minimizing their costs over employee fees. Until there’s real competition or regulation, this won’t change.
I helped design my company’s 401k plan. At first, they wanted to charge nearly 2% in fees, but we negotiated it down to a flat $59 per participant. If your plan’s fees feel high, it’s worth pushing for a review or renegotiation.
@Kit
Wow, 2% is ridiculous. Good on you for getting it down!
I don’t get why people are giving you a hard time. For most people, 401ks and IRAs feel like the same service—holding investments—but 401k fees can be way higher. It’s hard to see how that’s justified. Maybe 401k providers charge more just because they can.
In the end, the tax savings and employer match usually outweigh the fees. $250 in fees vs. thousands saved in taxes is still a win.
The real question is, why do 401ks even exist? Why not just use IRAs for everything? Let people pick their own providers, and employers could contribute directly to those accounts.