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How to avoid sneaky 401(k) fees

Learn to sniff out the hidden fees buried in the fine print of your retirement account.

401(k) fees tend to fly under the radar. Some investors view them as a necessary evil; others are unaware they’re being charged anything at all. But the more you understand how 401(k) fees work, the better equipped you’ll be to lessen their impact on your bottom line.

401(k) fees to expect

401(k) fees are fees charged for the maintenance and upkeep of your 401(k) account. These fees usually range from 0.5% to 2% and tend to be unavoidable — although there are steps you can take to lessen the load.

These fees come in a variety of shapes and sizes, including the fees charged by your plan administrator, expense ratios of portfolio funds and investment advisory fees.

How to find 401(k) fees

Many investors are unaware of the fees eating into their retirement savings because they don’t know where to look — or what they’re looking for. To identify 401(k) fees, look no further than your 401(k) account statement or prospectus. The US Department of Labor requires all 401(k) providers to disclose all fees associated with 401(k) accounts.

Once you’ve got your hands on your account statement or annual report, start scanning line items for total plan expenses. You may even find fees broken down into independent categories, including:

  • Total asset-based fees
  • Total operating expenses
  • Fund expense ratios

If these fees are expressed as a percentage, multiply this figure by the total value of your holdings to find out how much that fee costs you for the year.

Common 401(k) fees

Here’s a breakdown of the most common fees associated with 401(k) accounts, how much you can expect to pay and how they’re calculated.

FeeWhat it isHow it’s calculatedAverage cost
12b-1 feesThe 12b-1 fee is commonly encountered by investors who hold mutual funds in their portfolio. It’s a combination of a distribution and marketing fee and a service fee.Percent of a mutual fund’s net assets.Typically 0.25% to 1%
Expense ratiosAn annual mutual fund fee that’s charged to cover the costs of managing and operating the fund.Percent of a mutual fund’s net assets.Typically 0.1% to 2.5%
Load feesA fee that’s charged when you buy or sell mutual funds.Percent of the mutual fund investment.Typically 3% to 5%
Bid-ask spreadA brokerage fee that accompanies stock and ETF trades. It’s the difference between how much a buyer is willing to pay for a stock or ETF and how much a seller is willing to accept for that stock or ETF.Percent of the asset’s value.Typically 0.01% to 20%
Administrative feesThis fee helps to cover the cost of running the fund, including accounting, legal, trustee and office administration fees.Flat annual rate.Typically $25 to $200
Advisory feesIf your plan is actively managed by a portfolio advisor, you’ll be charged an advisory fee to cover the expense of managing the investments within the fund.Percent of the total balance of the account.Typically 1%
Individual service feesFees charged to plan participants that opt into special features of the plan, like brokerage account windows or loans.Flat annual rate.Typically $50 to $200

Why 401(k) fees matter

Most 401(k) fees top out around 2%, which likely doesn’t seem like much. But take a look at these fees in action — especially over the span of a decade or so — and you’ll quickly recognize why 401(k) fees matter.

Let’s say you put $50,000 into a 401(k) and let it sit for 10 years. Your account earns an average return of 8%, and you’re paying 2% in 401(k) fees. Over these 10 years, you’d sacrifice $13,509.19 of your account balance to account fees. Were your fees sitting at 1% instead of 2%, you’d only pay $4,694.01.

How to minimize 401(k) fees

Some 401(k) fees can be outmaneuvered. Others you’ll have to live with. If you take a look at your account statement and find multiple 401(k) fees eating into your bottom line, there are a few things you can do.

  • Opt for low-fee funds. A number of fees associated with 401(k)s stem from mutual fund investments, including load fees and expense ratios. While load fees are fairly unavoidable, you can opt for index fund investments that typically carry expense ratios in the 0.3% to 0.5% range.
  • Talk to your employer. If your 401(k) fees are taking a sizable bite out of your return, reach out to your HR rep to address your concerns. In some cases, your company may be able to reduce plan fees by contacting the plan administrator. This is far from guaranteed, but it doesn’t hurt to ask.
  • Open an IRA. If you’ve reached out to your employer and not much can be done to mitigate your plan’s fees, consider contributing enough to your 401(k) to get your employer’s match and then open an individual retirement account elsewhere. You’ll be in full control of the process and can shop brokerages until you find the right fit.

Compare retirement accounts

These are some of the companies offering IRA accounts or help in managing retirement portfolios.

1 - 4 of 4
Name Product Annual fee Available asset types
$1 per month
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Stocks, Options, ETFs, Cryptocurrency
A beginner-friendly broker that offers paper trading, so you can try the platform before depositing funds.
SoFi Automated
$0 per month
Stocks, Cryptocurrency
Put your money to work. Let SoFi build and manage a portfolio for you. Pay zero SoFi management fees.
0.25% on balances up to $99,999

0.4% on balances of $100,000+
Stocks, Bonds
Betterment's automatic investment site aims to improve your returns and support good financial habits with passive investing and financial planning support.

Compare up to 4 providers

Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

Bottom line

The more you know about your 401(k) and its accompanying fees, the better. While you can’t eliminate all 401(k) fees, you can take steps to lessen their impact. And if you’re not happy with your 401(k), compare your investment options across multiple platforms to find the account that best meets your financial goals.

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