How 401(k) Fees Affect Your Retirement Balance (and How to Find Them)

Fees in a 401(k) are usually small percentages that are easy to overlook. But they're charged every year on your whole balance, so over a career they can add up to a significant amount, sometimes tens of thousands of dollars.

Types of 401(k) fees

• Investment fees (expense ratios): charged by each fund as a percentage of the money invested, taken out of fund returns. Broad index funds often charge well under 0.2% a year; actively managed funds commonly charge more.
• Plan administration fees: for recordkeeping, legal and accounting services; sometimes paid by the employer, sometimes by participants.
• Individual service fees: for specific transactions such as loans.

How much fees cost over time

Consider $500 a month invested for 35 years with a 7% return before fees:

Annual fees	Net return	Approx. ending balance
0.10%	6.9%	about $880,000
0.50%	6.5%	about $800,000
1.00%	6.0%	about $710,000

Total contributions are the same $210,000 in every row; the only difference is cost. Paying 1% instead of 0.1% leaves about $170,000 less, roughly a fifth of the balance. You can test your own numbers in the 401(k) calculator by lowering the annual return by your fee percentage.

Where to find your fees

US plan administrators must give participants fee disclosures, often called the participant fee disclosure or 404a-5 notice. Look for:

• The expense ratio of every fund in your plan's menu.
• Administrative fees deducted from your account, shown on quarterly statements.
• Any fees for loans, distributions or advice services.

The U.S. Department of Labor publishes plain-language guides on understanding retirement plan fees.

Ways to lower costs

1. Compare fund expense ratios within your plan; index funds or target-date index funds are often the cheapest options.
2. Avoid unnecessary trading and paid add-on services you don't use.
3. When you change jobs, compare your old plan's costs with your new plan or an IRA before deciding where to keep your savings.
4. Ask your employer whether lower-cost share classes are available; employee feedback can influence plan choices.

Fees aren't the only factor

A low-cost fund that doesn't fit your goals isn't a bargain. Diversification and an appropriate mix of investments for your age and risk tolerance still matter. But between two similar funds, the cheaper one starts with an advantage that compounds every year.

Related

See how much to save for retirement to set a target, and how a 401(k) match works to make sure you're getting every employer dollar.

Educational content only, not investment advice.