A 1% annual fee gap on a $1 million 401(k) hands roughly $280,000 to fund companies instead of the retiree, per Department of Labor guidance.
Fee drag hits hardest near retirement because it's charged on the full balance, and a 1% fee costs an $850,000 portfolio over $308,000 in its final 15 years.
Workers over 59½ can roll existing balances into a low-cost IRA with index funds charging between 0.03% and 0.10%, all while still contributing to capture their employer match.
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A 58-year-old engineer with roughly $244,900 in her main 401(k) and another $600,000 in a rollover IRA logged into her plan last month and noticed the line labeled "expense ratio: 0.87%." She had been contributing for 32 years and had never opened the fund fact sheet. That single line item, compounded across a career, is the difference between retiring at 65 and working until 68.
This is the quietest wealth transfer in American finance. The Department of Labor's own guidance is blunt: a 1% difference in annual fees reduces a career-long 401(k) balance by roughly 28%. On a plan that would otherwise grow to $1 million, that is $280,000 handed to the fund company and record keeper instead of the retiree.
A worker contributing $8,000 per year for 35 years at a 7% gross return ends with about $829,000. Drop the net return to 6% because a 1% fee layer is skimmed off the top, and the same contributions produce about $669,000. The gap is roughly $214,000, and none of it shows up on a statement as a line item called "fees paid." It shows up as a smaller number in the balance column.
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The fee layer stacks at least three separate charges: the fund expense ratio, the plan's administrative and recordkeeping fee (often 0.30% to 0.60% at smaller employers), and any revenue-sharing embedded in the fund lineup. The Investment Company Institute's 2025 study put the asset-weighted average equity fund expense ratio inside 401(k)s at 0.26%, and the average target-date fund at 0.29%. Averages hide the tail: plenty of mid-market plans still carry all-in costs above 1%, and participants inside them almost never know.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
