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.
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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|
*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)…