The Hidden 401k Fees

401(k) plans can involve a long list of costs and fees, some of which are covered by the employer and some by the employee. Below is a quick sampling:

• recordkeeping fees
• annual audit fees
• back-end loads
• brokerage commissions
• contract administration fees
• distribution expenses
• expense ratios
• front-end loads
• installation fees
• investment transfer expenses
• loan fees
• participant education fees
• plan document filing costs
• termination fees
• trustee service costs
• wrap fees
• 12b-1 fees
• management fees
• mortality & administrative fees
• nondiscrimintation testing fees

These costs and extra fees can eat away at your retirement account and your hard-earned money. Currently, some 401(k) plans are costing participants as much as 3% to 4% per year. However, with some effort and diligence, you have the ability to drastically reduce these costs.

Reducing these costs just slightly can help increase your nest egg. If just 1% of annual cost is eliminated and you achieve a net return of 8% rather than 7%, an account will be worth 32% more in 30 years. In dollars, this would turn your $758,000 nest egg into a $1 million dollar retirement account.

In an effort to make fees more transparent to plan participants, amended provisions of ERISA Regulation 408(b)(2) must be implemented by July 16, 2011. This legislation will require investment managers and advisors to disclose all investment costs in a written itemized format. These new regulations will help you know the costs you are paying for your 401(k) plan.

This is a big step forward, but it doesn’t eliminate the personal responsibility of plan participants to demand information about their plan’s costs. You must take an active role in requiring your employer to choose low-cost retirement programs. If you find the costs of your employers’ 401(k) plan to be excessive, put pressure on the HR department to consider alternative plan providers.

About the author

Lon Jefferies, CFP®, MBA

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a Certified Financial Planner (CFP®) and a member of the National Association of Personal Financial Advisors (NAPFA). He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Utah CEO, Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as and (by The Wall Street Journal). Additionally, Lon is an expert author at Lon has been quoted nationally in publications such as the NY Times and Investment News.

Lon can be contacted at (801) 566-0740 or Learn more about Net Worth Advisory Group at and visit Lon's blog at


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  • Lon,

    Thank you for addressing this topic. I see it far too often that investors are unaware of the total amount of fees they are paying in their 401(k) plan. If they have not already, all 401(k) participants should go to their employer and find out exactly what their fees are.

    Joe McCulloch, CFP(R)
    Smart401k Senior Investment Adviser

  • Dont forget that Vanguard also offers a huge selection of low cost fees and that E trade has a wonderful user friendly site!

  • Sher,

    Without knowing the specifics of your situation, I believe rolling your 401(k) into an IRA (or a Roth IRA, depending on your tax circumstances) would be a good move. Note: beware of IRAs at your local bank. They can sometimes offer limited investment options. Look into Fidelity or Schwab about opening an IRA and move the 401(k) dollars there. This will grant you much expanded investment options, and potentially lower costs.

  • Ex-employer is bothering us to move our 401k because he doesnt want to pay his fees he has to pay, but according to the amount that we have in there we dont have to move it. But we do want to eventually get it out of there since he is a small heating and air conditioning business and something could happen to it. Bank told us to roll it into either and IRA or roth IRA I cant remember. We dont plan on touching it for a longtime. Current employer offers stock in their 401k so thats why we dont want to roll it over to them.

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