Roth/Traditional 401k Options To Reduce Administrative Fees

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orygunboxer
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Roth/Traditional 401k Options To Reduce Administrative Fees

Post by orygunboxer »

My partner has a Roth 401k & a traditional 401k through an employer. They have come to realize the plan administrative fees are exorbitant. We are in search of solutions that keep us invested in the market, but eliminate the high fees. Details below:

Starting with the Roth 401k... The current balance is $60,000. They have been doing post-tax auto-withdrawals from their paycheck into the account which holds an index fund tracking a major index. The expense ratio is 0.03% on the index fund, but the plan administrator has their own fees which are quite high. For example, quarterly the plan administrator takes a fee of about $40 (from that $60,000 balance). So yes, quite high.

For the Traditional 401k... the company deposits their portion of "profit sharing" into the account annually on a pre-tax basis. The current balance is $40,000.

Those are the basic details to get started. If you would like additional info, please say so. Requesting ideas on actions we can take now to smartly get the money to a new account (maybe a new investment firm?) with lower fees, but also be smart from a tax perspective.

Thank you all in advance.
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FiveK
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by FiveK »

orygunboxer wrote: Wed Jul 28, 2021 11:09 pm The expense ratio is 0.03% on the index fund, but the plan administrator has their own fees which are quite high. For example, quarterly the plan administrator takes a fee of about $40 (from that $60,000 balance).
4*$40/$60,000 + .03% = 0.297%.

While not as good as one can do in an IRA, that's not terrible for a 401k. See 401(k) - Bogleheads for context.

See also Prioritizing investments - Bogleheads for some things to consider, and finally there is How to campaign for a better 401(k) plan - Bogleheads if your partner wants to go that route.
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JoMoney
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by JoMoney »

Is your partner still employed where this 401k plan is? It's not likely the plan will allow you to rollover or move the assets while still employed there.

$40 a quarter does seem high to me, but not extremely so.
A $160 annual fee ($40 x 4) works out to something like .27% on a $60,000 balance.
If it's like other plans I've seen, the plan administrative fee is a fixed $ amount (not a % of assets), so as your 401k account grows in size the fee will be a relatively smaller percentage.
It's still a cost you might want to avoid if you can, but I would suspect you don't have a choice to move the 401k money while still employed with the company.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
HomeStretch
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by HomeStretch »

If this is an active employer 401k plan and your partner is < age 59-1/2:
- IRS rules prohibit the in-service distribution of employee elective deferrals < age 59-1/2.
- the plan provisions likely do not permit your partner to rollover their employer match balance to an IRA at another brokerage (read the plan documents).
- there are ‘hardship’ exceptions specified in the plan documents to the above. High plan fees are not considered a hardship.

Your partner’s total 401k account balance is $100k (the total of the Roth and Traditional sub-accounts). The $40/quarter administrative fee deducted from the Roth sub-account only should be viewed as a % of the total 401k balance. So the administrative fee as a percentage is 0.16% (= (4x$40) / $100k).

IMO 0.16% 401k administrative fee is not high or exorbitant for a 401k and the fund ER is reasonable. The admin fee % will decrease as the plan balance grows. If your partner makes the maximum contribution of $19,500 for 2021, the admin fee % decreases to 0.13% and even lower after the 2021 earnings/employer match.
nolesrule
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by nolesrule »

I've had plans where the best investment Expense Ratio was higher than that fee total... and there were still admin fees on top of that. Those fees aren't terrible and they are something I could live with.
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orygunboxer
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by orygunboxer »

JoMoney wrote: Wed Jul 28, 2021 11:32 pm Is your partner still employed where this 401k plan is? It's not likely the plan will allow you to rollover or move the assets while still employed there.

$40 a quarter does seem high to me, but not extremely so.
A $160 annual fee ($40 x 4) works out to something like .27% on a $60,000 balance.
If it's like other plans I've seen, the plan administrative fee is a fixed $ amount (not a % of assets), so as your 401k account grows in size the fee will be a relatively smaller percentage.
It's still a cost you might want to avoid if you can, but I would suspect you don't have a choice to move the 401k money while still employed with the company.
Yes, partner is still with the employer. Plans to be with them for the foreseeable future.

Thank you to all that have provided some perspective on the fees and how they compare. We felt the fees were exorbitant, but some perspective has showed as that they may not be.

What would be some thoughts on discontinuing the auto-withdrawal into the Roth 401k, allowing the current money to sit in both of these accounts (assuming some type of withdrawal is not allowed at this age), and then opening a separate account with a lower-cost provider (Vanguard) to have those auto-withdrawals deposited there instead?
tashnewbie
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by tashnewbie »

orygunboxer wrote: Thu Jul 29, 2021 9:28 am What would be some thoughts on discontinuing the auto-withdrawal into the Roth 401k, allowing the current money to sit in both of these accounts (assuming some type of withdrawal is not allowed at this age), and then opening a separate account with a lower-cost provider (Vanguard) to have those auto-withdrawals deposited there instead?
More information is needed.

You could post a more complete portfolio review using this suggested format: viewtopic.php?f=1&t=6212

Your spouse should definitely continue to do automated paycheck deferrals into the 401k to capture the full employer match.

After that, I think it'd depend on your tax bracket and goals. If you're in the 12% bracket, it'd make sense to fill Roth IRAs for both of you before putting more into the 401k. If you have more money to save after doing 401k to employer match and maxing 2 Roth IRAs, then I would probably go back to the 401k. If you're in higher tax brackets, it'd probably make sense to prioritize 401k over Roth IRA, if you can't max both, because of the tax deferral benefit.
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orygunboxer
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by orygunboxer »

tashnewbie wrote: Thu Jul 29, 2021 9:48 am
orygunboxer wrote: Thu Jul 29, 2021 9:28 am What would be some thoughts on discontinuing the auto-withdrawal into the Roth 401k, allowing the current money to sit in both of these accounts (assuming some type of withdrawal is not allowed at this age), and then opening a separate account with a lower-cost provider (Vanguard) to have those auto-withdrawals deposited there instead?
More information is needed.

You could post a more complete portfolio review using this suggested format: viewtopic.php?f=1&t=6212

Your spouse should definitely continue to do automated paycheck deferrals into the 401k to capture the full employer match.

After that, I think it'd depend on your tax bracket and goals. If you're in the 12% bracket, it'd make sense to fill Roth IRAs for both of you before putting more into the 401k. If you have more money to save after doing 401k to employer match and maxing 2 Roth IRAs, then I would probably go back to the 401k. If you're in higher tax brackets, it'd probably make sense to prioritize 401k over Roth IRA, if you can't max both, because of the tax deferral benefit.
Thank you for the reply. I will provide more details here. Later this evening when I can get the info from them, I will do my best to provide a portfolio review using the suggested format.

There is no employer match for the Roth 401k contributions.

There is an annual profit sharing contribution that goes into a Traditional 401k, but there is no match aspect to this one. That profit sharing contribution will be made no matter what.

Thank you for the note about the Roth IRA. We teeter on the qualification limit, but when we are able to, we max those accounts out. We actually had to execute a Backdoor for 2020 (a process we were coached through on this forum), because we unexpectedly went above the income threshold, but that's a separate story.
TropikThunder
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by TropikThunder »

orygunboxer wrote: Thu Jul 29, 2021 9:28 am What would be some thoughts on discontinuing the auto-withdrawal into the Roth 401k, allowing the current money to sit in both of these accounts (assuming some type of withdrawal is not allowed at this age), and then opening a separate account with a lower-cost provider (Vanguard) to have those auto-withdrawals deposited there instead?
Short answer: A dollar in Roth > a dollar in taxable. Neither give you a tax benefit on the way in, but the Roth won't get taxed on the way out either, while you'll be incurring taxes on dividends and capital gains distributions along the way in taxable plus taxes on the capital gains when you sell.
- $60,000 balance in Roth 40k with $40/quarter fee = $160
- $60,000 balance in taxable with 1.8% annual dividend yield = $1,080 in dividends taxed at 15% = $162

So if you are below the 15% qualified dividends and long term CG tax, taxable wins - barely. The dividends (and their taxes) will scale with the balance but it's not clear if the $40 fee is flat rate or a percentage.
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orygunboxer
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by orygunboxer »

Checking back in here with a much better understanding of the plan fees. See below direct from the plan paperwork. These are all charged Quarterly.

1. Custodial Services = 0.050% of Plan Assets
2. Custodial Transaction Fee = $0.06 Per Trade
3. Plan Administration = Pro Rata Share of $500 (don't understand this one)
4. Asset Based RK Fee = .140% of Plan Assets
5. Revenue Sharing Processing Fee = Pro Rata Share of $80 (don't understand this one)

As I stated before total plan assets currently sit around $100,000. $60,000 of that being in a Roth 401k. $40,000 of that being in a Traditional Roth 401k (this is the Revenue Sharing portion). A detailed breakdown of the most recent Quarterly fees:
1. Custodial Services = $44.35
2. Plan Administration = $0.94
3. Recordkeeping = $0.16
Total = $45.45

Hopefully this info is helpful to provide some perspective. With this more exact info, does the sentiment still remain that these fees are comparably not terrible?
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FiveK
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by FiveK »

orygunboxer wrote: Sun Aug 01, 2021 11:39 pm 1. Custodial Services = 0.050% of Plan Assets
4. Asset Based RK Fee = .140% of Plan Assets

...total plan assets currently sit around $100,000.

A detailed breakdown of the most recent Quarterly fees:
1. Custodial Services = $44.35
3. Recordkeeping = $0.16
Those don't look bad at all for a 401k. But something is amiss with the Record Keeping information: 0.14% > 0.05%, but $0.16 < $44.35.
HomeStretch
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by HomeStretch »

The fees are moderately high. IMO your partner should maximize 401k deferrals as tax deferred/Roth space is limited and valuable.
nolesrule
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by nolesrule »

orygunboxer wrote: Sun Aug 01, 2021 11:39 pm Checking back in here with a much better understanding of the plan fees. See below direct from the plan paperwork. These are all charged Quarterly.

1. Custodial Services = 0.050% of Plan Assets
2. Custodial Transaction Fee = $0.06 Per Trade
3. Plan Administration = Pro Rata Share of $500 (don't understand this one)
4. Asset Based RK Fee = .140% of Plan Assets
5. Revenue Sharing Processing Fee = Pro Rata Share of $80 (don't understand this one)

As I stated before total plan assets currently sit around $100,000. $60,000 of that being in a Roth 401k. $40,000 of that being in a Traditional Roth 401k (this is the Revenue Sharing portion). A detailed breakdown of the most recent Quarterly fees:
1. Custodial Services = $44.35
2. Plan Administration = $0.94
3. Recordkeeping = $0.16
Total = $45.45

Hopefully this info is helpful to provide some perspective. With this more exact info, does the sentiment still remain that these fees are comparably not terrible?
Pro-rata share of plan assets means that each participant pays based on their percentage of all the money in the workplace plan. If your money is 10% of the money in the plan, then you would pay 10% of the $500 and the $80. ($50, $8). If you hold 1% of the total plan assets, you'd pay $5, $0.80.
02nz
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by 02nz »

This wiki entry on campaigning for a better plan may be useful: https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan

ETA: Doh, I see FiveK already linked it.
Topic Author
orygunboxer
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by orygunboxer »

nolesrule wrote: Mon Aug 02, 2021 9:32 am
orygunboxer wrote: Sun Aug 01, 2021 11:39 pm Checking back in here with a much better understanding of the plan fees. See below direct from the plan paperwork. These are all charged Quarterly.

1. Custodial Services = 0.050% of Plan Assets
2. Custodial Transaction Fee = $0.06 Per Trade
3. Plan Administration = Pro Rata Share of $500 (don't understand this one)
4. Asset Based RK Fee = .140% of Plan Assets
5. Revenue Sharing Processing Fee = Pro Rata Share of $80 (don't understand this one)

As I stated before total plan assets currently sit around $100,000. $60,000 of that being in a Roth 401k. $40,000 of that being in a Traditional Roth 401k (this is the Revenue Sharing portion). A detailed breakdown of the most recent Quarterly fees:
1. Custodial Services = $44.35
2. Plan Administration = $0.94
3. Recordkeeping = $0.16
Total = $45.45

Hopefully this info is helpful to provide some perspective. With this more exact info, does the sentiment still remain that these fees are comparably not terrible?
Pro-rata share of plan assets means that each participant pays based on their percentage of all the money in the workplace plan. If your money is 10% of the money in the plan, then you would pay 10% of the $500 and the $80. ($50, $8). If you hold 1% of the total plan assets, you'd pay $5, $0.80.
Very helpful. Thank you.
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retiredjg
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by retiredjg »

orygunboxer wrote: Wed Jul 28, 2021 11:09 pm Requesting ideas on actions we can take now to smartly get the money to a new account (maybe a new investment firm?) with lower fees, but also be smart from a tax perspective.
There is little to nothing that can be done while your partner is working for that employer. At the very most, the employer contributions might be rolled out (depends on the plan).

Not to worry, those fees are not particularly high ($160 a year for a $100k investment).
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orygunboxer
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Re: Roth/Traditional 401k Options To Reduce Administrative Fees

Post by orygunboxer »

retiredjg wrote: Mon Aug 02, 2021 1:23 pm
orygunboxer wrote: Wed Jul 28, 2021 11:09 pm Requesting ideas on actions we can take now to smartly get the money to a new account (maybe a new investment firm?) with lower fees, but also be smart from a tax perspective.
There is little to nothing that can be done while your partner is working for that employer. At the very most, the employer contributions might be rolled out (depends on the plan).

Not to worry, those fees are not particularly high ($160 a year for a $100k investment).
Thank you for this.
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