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Do you know just how much your 401(K) is costing you when it comes to saving for retirement? Find out if you're getting the most out of your plan or losing tons on fees.
When it comes to saving for retirement, do you know just how much your 401(K) is costing you? Odds are that you don’t… and this could mean the difference of tens of thousands of dollars when it finally comes time to retire.

Can you afford to lose that kind of money on fees?

Portfolio Fees are Easy to Forget… and Easy to Miss

Most working Americans think of their retirement accounts as a Ronco rotisserie: they set it and forget it. After establishing automatic transfers from their paycheck each month, they sit back and let the balance grow.

Sure, most of us check the balance on occasion, and we will get annual notices for tax purposes. But because a 401(k) does not send out a monthly or quarterly bill, it’s easy to forget about the fact that these retirement accounts can cost plenty. Most employers absorb some of these costs, but many of them are passed on to employees in the form of higher expense ratios for the mutual funds in the plan.

The 401(K) Fees You’re Paying

You might be surprised to learn that you are paying a number of different types of fees related to your work-based retirement account. In fact, the average worker with a $30,502 median salary will pay more than $138,350 in 401(K) fees over their lifetime. Think of all the things you could do in retirement with that much extra money!

Of course, fees aren’t entirely avoidable and a 401(K) is still an excellent savings vehicle. Too-high fees can seriously cut into your money’s growth, however, so it’s important to reduce them whenever you can.

The first step is simply knowing what you’re paying and why. There are three primary fee categories for the expenses involved with your employee 401(K) plan:

  • Investment/management fees: These include basic expense ratios, as well as sales loads (commissions paid when selling shares) and operational costs (such as the 12(b)-1 marketing fee).
  • Administrative fees: These fees are included for the actual management of your account, to include legal services, accounting, reporting, and record-keeping.
  • Service fees: If you take advantage of certain 401(K) features, you may incur additional service fees. These include charges for taking out a loan on your 401(K), rolling your savings into an IRA, or utilizing an available financial advisor.

Where to Find Your Own 401(K) Fees

Each year, you will receive a Summary Annual Report, or SAR, for your 401(K) plan. This report is a summary of the IRS Form 5500 that will detail your plan’s expenses, amount of contributions, value of the plan’s assets, and a copy of your rights to information as a plan participant.

While this form may look like a bunch of gibberish, it holds the key to discovering your actual 401(K) fees, and is definitely worth a skim.

In your SAR will be a section titled Basic Financial Statement. Here, you will find exactly how much the plan’s expenses were and how those fees are broken down.

How Your 401(K) Fees Compare

In the past, it was almost impossible to compare 401(K) plans against one another. Now, though, there are a number of free tools that make an analysis like this a snap.

Let’s take a look at two of these tools–Bright Scope and Blooom–and how they can help you accurately gauge your own 401(K) expenses.

Bright Scope

Want to evaluate your current 401(k) plan and compare it against other comparable, employer-sponsored 401(k) plans? Then Bright Scope has everything you need.

Through their website, see how your 401(K) plan is “graded,” analyze financial advisors, and even ask financial questions of your own. You don’t even have to create a login in order to see this info.

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Not sure which plan you have or want to see what other companies are providing? No problem. You can search plans using only a company name. Out of curiosity, I took a look at my brother’s workplace and found that their plan ranks below-average within its peer group.

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This rating isn’t all I’m able to see, either. I can click to see ratings for the plan components, who the peer groups are that the plan is judged against, and even the funds included in the investment portfolio.

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All of this information is incredibly helpful when gauging just how much you’ll be paying in 401(K) fees, and how that compares to the fees of your peers.

You may be wondering how BrightScope.com calculates their data and where it all comes from. Everything they pull comes from public records and trusted sources within each company, and their numbers are calculated assuming identical information. All plans are assumed to have a participant who is 44 years of age, earns $44,000 in income each year and already has $40,000 invested in their 401(k) accounts. If you don’t find yourself in this exact situation, not to worry, your plan score will still work out roughly the same but the amount your 401(K) is costing you will vary.

If you decide to register with BrightScope (it takes less than 30 seconds), you’ll be given extra information about your plan. This includes a report on the fees you will pay each year as well as possible alternatives.

Blooom

If you want to not only know where your current plan stands but also discover where you should personally stand regarding allocations, diversifications, and fees, then Blooom might be the better choice.

With Blooom, you will get a fee-free analysis of your existing 401(K) plan, letting you know how it measures up in terms of fees and performance. If Blooom finds that you are overpaying on expenses or that your money is underperforming, you can choose to have them take over management of your funds.

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Your 401(K) will still be an employer-sponsored account and you don’t actually have to move anything. For a low fee, though, you can allow Blooom’s advisors to recommend adjustments to your existing allocations and even make readjustments as needed over time. This will not only ensure optimal growth of your retirement savings, but could save you tens of thousands of dollars in fees.

Blooom acts as a robo-advisor, setting your allocations and fund choices based on your retirement goals (including your own personal timeline). As the years go on–or if your needs or plans change–Blooom will adjust your investments accordingly. They are also happy to answer financial questions you may have, make recommendations regarding your monthly contributions, and even offer advice about retirement planning.

If you have a Traditional or Roth IRA, Blooom can help you, too. Their service will make recommendations to you regarding your IRA allocations, to ensure that this retirement account is also performing as optimally as possible over the years.

The analysis of your 401(K) plan is entirely free and takes only a few minutes. You’ll need to sign in to link your existing account within their platform, but then they are able to do the rest.

If you are interested in having Blooom manage your funds and help you better grow your retirement savings, there is a $120 annual fee for the robo-advisor service. This includes both management and monitoring, as well as the ability to uncover and reduce 401(K) fees that are eating away at your savings.

Bottom Line

Managing a 401(K) can be confusing, which is probably why so many employees are content to set up their distributions and let the savings run on autopilot. However, this can often lead to expensive problems, as many 401(K)s have hefty fees that are unnecessary and avoidable, but can cost you tens (or hundreds) of thousands over time.

Do your due diligence regarding your company-sponsored retirement plan. Use a service like Blooom or Bright Scope to see where you stand; if you’re not happy with what you find, change it.

After all, it’s your hard-earned money: do everything in your power to keep it.

Article comments

10 comments
Mario Brothers says:

Is there a way to see what investments options are available within a plan?

Michael says:

To Mario Brothers:

Yes, you can see what the investment options for each 401K are. In the first picture example above, you will notice a tab at the top of the page titled “Form 5500 Data”. When you select that tab you will be brought to a page where you can select another sub-tab, fittingly titled “Investments”.

Brightscope.com is an excellent site. In my blog I discuss my path to becoming totally debt free.

ctreit says:

Thanks for sharing this website with your readers. I have long been bothered by (mostly hidden) 401k fees.

Daddy Paul says:

Very informative. I did not know such a tool existed. Many times a low cost index fund in your 401K is the way to go.

Most people have forgotten about their 401ks. They certainly aren’t tracking fees or hidden expenses. These new websites should be a great help to investors.

Austin CPA says:

Making sure you don’t get charged excessive fees should be a priority for most folks. Unfortunately, the 401k statements are so tough to read how could you tell?

Real Estate Bird Dog says:

401k fees are often buried in the fine print. So take a close look at your statements. You might be surprised!

Most people don’t look through their statements, so they wouldn’t even know. Once you actually look close you can see the fees.

CAAS says:

This is great info! I’ve had quite a few friends start dipping into their 401k’s after they’ve been laid off…NOT a good idea! I mean, if you absolutely HAVE to do it to survive it’s understandable, but incredibly risky. Save yourself from the fees and tax mess and avoid it at all costs!