Enrolling in a 401(k) plan is like getting hold of a cheat code for retirement: Not only is it tax-advantaged, but it often includes a company match.
It’s true that 401(k) plans can be immensely helpful to building your retirement portfolio. But not all 401(k) plans are equal. Some companies offer a dollar-for-dollar match, and others offer 50 cents on the dollar. Some offer to match up to 3% of your income, and some offer 6%.
Even if you pay attention to those details, you may not have considered the impact of your company’s 401(k) fees.
Table of Contents
How Much Do 401(k) Fees Really Matter?
It may seem like the difference between fees of 0.25% and 0.75% isn’t a big deal. But over decades, with large sums of money, that seemingly negligible difference can make a huge financial impact.
Assuming a 6% annual return and a combined $20,000 in annual contributions for 30 years, the difference between 0.25% and 0.75% in fees is $140,215.46.
| Annual Investment* | Years | Annual ROI | Expenses | Total Fees | Net Value |
|---|---|---|---|---|---|
| $20,000 | 30 | 6% | 0.25% | $75,729.51 | $1,600,304.04 |
| $20,000 | 30 | 6% | 0.5% | $147,644.96 | $1,528,388.59 |
| $20,000 | 30 | 6% | 0.75% | $215,944.97 | $1,460,088.58 |
*This hypothetical includes your contributions plus your employer’s match.
Defining an ‘Expensive’ 401(k) Plan
Now that, you understand the difference that fees can make, you may be wondering what defines a “good” amount of fees to pay for a 401(k) plan?
You’re actually paying two separate fees when you hold a 401(k)…
