How to Read Your 401(k) Fees in 10 Minutes

Your 401(k) charges fees, and you almost certainly never see a bill. The money comes out of your investment returns, so nothing shows up on a statement as a line you have to pay.

That is why a small number gets so little attention. The US Department of Labor shows how much it can matter, and reading your own numbers takes about ten minutes.

Key takeaways

• Investment fees are the largest part of 401(k) costs, and they are taken out of your returns, not billed to you.
• The Department of Labor's example: a 1 percentage point difference in fees cut a final balance by 28 percent.
• Your plan must give you a fee comparison chart. Find it, read the expense ratio column, and convert it to dollars.

Why a small percentage matters

The Department of Labor gives this example. Take a $25,000 balance, 35 years until retirement, and average returns of 7 percent, with no new contributions.

• With 0.5 percent in fees: about $227,000 at retirement.
• With 1.5 percent in fees: about $163,000.

That 1 point difference in fees reduces the final balance by 28 percent. It is an illustration, not a prediction, but it shows why the percentage is worth finding.

The three kinds of fees

1. Investment fees. The largest piece. Charged as a percentage of what you have invested and deducted from your returns.
2. Plan administration fees. Recordkeeping, legal, and customer service. Your employer may pay these, or they may come out of plan assets, either shared by balance or as a flat charge.
3. Individual service fees. Charged only if you use a feature, such as taking a loan from the plan.

Where to find yours

1. The investment comparison chart. Your plan provides it before you first invest and then every year. It lists each fund's expense ratio, which is the cost of running that fund.
2. Your quarterly statement. It shows administrative and individual fees paid from your account. It does not show costs taken from your investments.
3. The summary plan description. It explains what the plan provides and how expenses are shared.
4. The Form 5500 annual report. It shows the plan's total administrative expenses and is free to view online. It does not show costs inside your investments.

Turn the percentage into dollars

Take each fund you own and multiply its expense ratio by your balance in that fund.

• 0.5 percent of $50,000 is $250 per year.
• 1.0 percent of $50,000 is $500 per year.

Then ask whether a cheaper option in your plan does the same job. Compare funds that hold similar things, and treat fees as one input, alongside any employer match, rather than a reason to stop contributing.

Your checklist for this week

• ☐ Find the investment comparison chart in your plan portal or ask HR.
• ☐ Write down the expense ratio for every fund you hold.
• ☐ Convert each one to dollars per year using your balance.
• ☐ Check your latest quarterly statement for administrative or individual fees.
• ☐ If a number looks high, ask your plan administrator to explain it.

The takeaway

You do not need to change anything today. You only need to know your numbers. Find the chart, list the expense ratios, and convert them to dollars. Doing this once a year takes about ten minutes.

Open enrollment is a natural time to do it, so add it to your open enrollment checklist, and fold it into your year end money review.

This is general education, not personalized financial advice.

Subscribe below for the next Financial piece: how Roth and traditional retirement contributions differ.