July 8, 2025 • 12 mins
“Hey Mike, I tried to calculate my 401k fees and it looks like I’m paying around 3%. Is that even possible?” Discover the different types of fees that may be a part of your 401(k) plan and what you can do about it.
Text your questions to 913-363-1234.
Request Your Wealth Analysis by going to www.retireontime.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mike (00:05):
Welcome to How to Retire on Time, a show that answers
your retirement questions. Myname is Mike Decker along with
David Franson over here, andwe're gonna be taking your
questions. Just text them rightnow to (913) 363-1234, and we'll
take them one at a time. Again,that number, (913) 363-1234.
Let's begin.
David (00:22):
Hey, Mike. I tried to calculate my $4.00 1 k fees, and
it looks like I'm paying around3%. Is that even possible? Okay.
So for context, it is possible.
It's not common. Okay.
Mike (00:35):
I do not want this question to get out of control.
Most four zero one k plans, fourzero three b's, I see anywhere
from a half percent to one and ahalf percent, depending on how
you calculate it. These smallerplans, like the solo four zero
one k's or other ways, they canstack up in fees. And the
(00:56):
smaller the plan is, the morethe fees will probably be. Let
me define how to properlycalculate four zero one k fees.
David (01:05):
Okay. Yeah. Let's do this.
Mike (01:06):
Most people don't know how this works. Right. And when they
figure it out, they typicallyget pretty upset. So when you
look at your four zero one k,the first thing you need to do
is look at the administrativecosts. Don't get upset by them.
It is very difficult. It is verytime intensive to manage the
four zero one k with ERISA law,which I agree with ERISA law and
how it's set up. It's helped toprotect your money. That's its
(01:27):
intention. But it takes time,and you gotta pay someone to do
it, so the administration feesare there.
Now sometimes they're morereasonable, sometimes they're
less reasonable, but look atthat fee to understand that is
coming out every year. K? Thenyou need to understand, is there
an advisory fee? Sometimesthere's like a 1% advisory fee
for this adviser that maybeyou've never even talked to, but
(01:49):
you're paying them a fee to beon the plan. So understand not
only the admin, but the advisoryfees are on there, and then
there's other miscellaneous feesas well.
So maybe your plan offers likean annuity option or other
things like that. There can beadditional fees tacked on
depending on how the four zeroone k, four zero three b, or
whatever the plan is isstructured, and the income or
(02:11):
end of plan options that areavailable to you. So be very
careful with that. Okay? Andthen there's a whole array of
other fees that could be onthere, but these fees typically
you're looking at anywhere from,I don't know, half percent to
one and a half, maybe up to 2%if you're a smaller plan, or
whoever the company is thatnegotiated it just didn't do an
(02:32):
aggressive job negotiating onthese fees.
Maybe they're like, we don'twanna pay as much to the
company, so our staff willbasically just pay higher fees.
That's a very normal thing thatwe see. The last set of fees are
the most obscure. It is verycommon based on what I've seen
where the fund options in yourfour zero one k aren't really
(02:55):
options that you're gonna see inthe public market. So when you
see a lot of mutual funds thatare out there, if you can't just
publicly buy the same exactmutual fund with the same exact
ticker, be suspicious.
They might say, well, this isthe mutual fund version of the S
and P 500. Well, it's like, whycan't I buy that fund? Well,
it's special for our four zeroone k plans. When it's special
(03:16):
for a four zero one k plan is,to me, that's a red flag saying,
oh, so you've got higher feesbaked in here, and I've got
limited options, so I can't domuch with it. Yikes.
So in those situations, theseare called 12 b one fees.
They're C share mutual fundsthat typically have, I mean,
anywhere from a half a percentto 1%, maybe even more, but
(03:37):
that's a fee you're paying everysingle year. So, yes, it is
possible if constructed thewrong way to pay around two or
3% in your whatever employmentcompensation plan is. Is it
common? No.
But you still need to know yourfees.
David (03:53):
Can you tell us how all these fees how do they, like,
erode your savings or yourbalance or the value of your
account?
Mike (03:59):
Yeah. So you know how we talk about sequence of returns
risk?
David (04:03):
If you
Mike (04:03):
don't know what that is, the sequence of the return
matters. So let's say youraccount is up. Great. Your
account's up, but then you justpaid fees. So let's say the
account's up 10%, or it shouldbe with the market, you paid 3%
fees, you only made 7%.
Mhmm. K? There's a compoundingeffect on that that can lead to
a lot less money when youretire. And when I say a lot
(04:26):
less, I mean significant less.
David (04:28):
Like 6 figures less.
Mike (04:29):
Yeah. Potentially. Layton, would you do just a quick favor
and just say, let's put a100,000 in at age 30 years old.
K? And what the compoundingdifference would be if they had
one, two, or 3% in fees.
And just as let's assume a 10%average growth on the portfolio,
just to make really simple math.Just throw it in chat GPT, and
(04:52):
and let's see what that does.Just we're doing this live real
quick, and then we'll talk aboutthat. But so that's that's one
part of it is you're missing outon upside potential. Mhmm.
K? Now the second level isaccentuating the losses. Those
fees are coming out regardlessof if you like it or not. So if
the markets go down 10%, ittakes an 11% return to break
(05:13):
even, not the end of the world.But if the markets go down 30%,
it would require a 43% return tobreak even.
So the deeper it goes down, theharder it is to recover. You
with me so far? Yep. So themarkets crash every seven or
eight years. We know that.
If the markets go down, let'ssay, 3032%, somewhere around
(05:34):
there, and you take out three or4% in fees, you're now down,
what, 34% or so? That's a 50%return to break even. Five zero.
And you're paying fees on theway up as well, so it might take
a couple of years just torecover. So fees, if they're
high, can accentuate the lossesmore than low fees, but fees in
general will accentuate lossesbecause they're paid regardless
(05:57):
of market conditions.
So roughly speaking, Leighton,if if we had, let's say, a
100,000 in there, I mean, 1%fees versus no fees, what would
that roughly look like?
Layton (06:09):
So 100,000 for forty years, and we do an average
annual return of 8%. With nofees, you're gonna get roughly
2,000,000. But with 1% annualfee, you'll get a roughly
1,500,000.0. So the differenceafter forty years
Mike (06:26):
Oh my.
Layton (06:27):
Is $675,000.
Mike (06:30):
K. Now let's go to 2% fees.
Layton (06:33):
And the future value with 2% fees is you're barely
breaking a million. That's ahuge difference. So the
difference is $1,140,000 overforty years, and eight percent's
average. That's an averagereturn.
Mike (06:46):
8% is a very normal return to be in the market. I mean, the
S and P 500 since 2000 to todayhas averaged around seven to 8%
year over year. So if you wentall in on equities and you
ignored these target funds,these bond fund mixes, and all
that, you just went straight Sand P, which historically has
had reasonable growth, thesefees can really erode your
(07:08):
retirement, and the greater thefee is. So here's the big
takeaway. Know your fees.
If you have high fees in yourportfolio, in your four one k
specifically, you're gonna wantto roll them over to an IRA
probably, and then just buy thesame thing and just hold it
without fees, if that's yourstrategy. I am resolute in the
(07:30):
opinion that the only reason whyyou would pay an adviser fees is
to get a better performance hadyou not paid the fee. So a four
zero one k plan that's paying 1%in fees for an adviser you never
talked to makes no sense. Whenpeople pay us, which is a flat
fee, it's not a percentage ofthe assets. When they pay us
(07:50):
that flat fee, the expectationis the growth in the market that
they experience over a longerterm period of time, because we
can't promise this year or thenext six months.
Right? But over a multiyear bitthat they were able to get more
money out of their portfoliothan had they done it on their
own. That is the expectation.And all of the tax planning, all
(08:11):
of the health care, theinsurance planning, all of the
estate assistance, and makingsure that's all the all the
other stuff that we do, which Ithink has probably more value in
the overall situation, is icingon the cake because the money
management that they're payingus to do has exceeded what they
would have done on their own. Sowhy in the world are we paying
high four zero one k fees to anadviser that doesn't know you
(08:33):
from Adam, that doesn't knowyour specific situation, that's
not making tax planning advice.
They're just saying, oh, well,here's some funds. I like these
funds. Great. Keep paying me 1%.
David (08:44):
Would there be any situation where maybe you had to
keep contributing to your fourzero one k even regardless of
the fees to, like, to get thematch?
Mike (08:51):
You can't roll over or remove your four zero one k
until you separate employment orturn 59. And that's not even
always the same situation,because sometimes, if you're
especially if you're a teacher,you're an educator, you work for
a hospital, many times thosefour zero three b's, you can't
move until you retire. And soyou're stuck paying these fees.
At risk of making someone upset,I can't stand it. This part of
(09:14):
URISSA law.
I love URISSA law. I thinkthere's so much good in how
they've structured the four zeroone k to protect people. But to
keep someone in a specific planwhen they have no negotiating
power over it, I think is prettyrough. I personally am partial
to SEP IRAs, which is for a selfemployed plan, or a simple IRA,
(09:40):
which is where you're workingwith a small small business, so
a 100 employees or less, andoperate off that because you've
got more freedom, you've gotmore flexibility, you can move
things around. It's justdifferent.
And I know there are some fourzero one k plans where you can
do whatever you want in themarket. There's brokerage links
and things like that that youcan buy ETFs, and that helps.
But how many layers of fees arethere you it is worth? What was
(10:04):
it potentially, Layton? Amillion dollars of extra money?
$1,400,000 of potential extramoney if you got ahead of this
and negotiated differently. Andmaybe you don't get a match. And
if you don't get a match, andyou have, let's say, $10,000 to
contribute, maybe instead of youputting into a four zero one k
in that situation, you'redeciding, hey. There's no match,
(10:26):
so I might as well just do myIRA contributions and my Roth
contributions for the yearbecause you can put that into a
system that has no fees. Feesmatter.
So it is possible. I hopeeveryone listening in will do my
homework that I'm gonna sign youright now, and that is just ask
what the fees are. Call up yourHR representative, your four
(10:49):
zero one k administrator.They're wonderful people.
They're happy to help, and say,you help me understand the fees?
And they'll probably break downthe adviser fees, the admin
fees, and all of that, but thendig deeper, and even ask if you
need to ask Grock, ask Chat GPTsaying, here is the mutual fund
or the ETF that I'm investing. Ican't find much on it. What are
the fees roughly? They might beable to help you find something
(11:11):
that you didn't know existed orhow to look for it. They can
walk you through that.
It's the beauty of AI is itoverexposes everything. Yes.
Fees matter. Sometimes someemployer plans can be expensive.
Look into it.
That's all the time we've gotfor the show today. If you
enjoyed the show, considersubscribing to it wherever you
(11:33):
get your podcast. Just searchfor how to retire on time.
Discover if your portfolio isbuilt to weather flat market
cycles or if you're missing taxminimization opportunities that
you may not even know exist.Explore strategies that may be
able to help you lower youroverall risk while potentially
increasing your overall growthand lifestyle flexibility.
(11:53):
This is not your ordinaryfinancial analysis. Learn more
about Your Wealth Analysis andwhat it could do for you
regardless of your age, asset,or target retirement date. Go to
ww.yourwealthanalysis.com todayto learn more and get started.
Welcome to How to Retire on Time, a show that answers
your retirement questions. Myname is Mike Decker along with
David Franson over here, andwe're gonna be taking your
questions. Just text them rightnow to (913) 363-1234, and we'll
take them one at a time. Again,that number, (913) 363-1234.
Let's begin.
David (00:22):
Hey, Mike. I tried to calculate my $4.00 1 k fees, and
it looks like I'm paying around3%. Is that even possible? Okay.
So for context, it is possible.
It's not common. Okay.
Mike (00:35):
I do not want this question to get out of control.
Most four zero one k plans, fourzero three b's, I see anywhere
from a half percent to one and ahalf percent, depending on how
you calculate it. These smallerplans, like the solo four zero
one k's or other ways, they canstack up in fees. And the
(00:56):
smaller the plan is, the morethe fees will probably be. Let
me define how to properlycalculate four zero one k fees.
David (01:05):
Okay. Yeah. Let's do this.
Mike (01:06):
Most people don't know how this works. Right. And when they
figure it out, they typicallyget pretty upset. So when you
look at your four zero one k,the first thing you need to do
is look at the administrativecosts. Don't get upset by them.
It is very difficult. It is verytime intensive to manage the
four zero one k with ERISA law,which I agree with ERISA law and
how it's set up. It's helped toprotect your money. That's its
(01:27):
intention. But it takes time,and you gotta pay someone to do
it, so the administration feesare there.
Now sometimes they're morereasonable, sometimes they're
less reasonable, but look atthat fee to understand that is
coming out every year. K? Thenyou need to understand, is there
an advisory fee? Sometimesthere's like a 1% advisory fee
for this adviser that maybeyou've never even talked to, but
(01:49):
you're paying them a fee to beon the plan. So understand not
only the admin, but the advisoryfees are on there, and then
there's other miscellaneous feesas well.
So maybe your plan offers likean annuity option or other
things like that. There can beadditional fees tacked on
depending on how the four zeroone k, four zero three b, or
whatever the plan is isstructured, and the income or
(02:11):
end of plan options that areavailable to you. So be very
careful with that. Okay? Andthen there's a whole array of
other fees that could be onthere, but these fees typically
you're looking at anywhere from,I don't know, half percent to
one and a half, maybe up to 2%if you're a smaller plan, or
whoever the company is thatnegotiated it just didn't do an
(02:32):
aggressive job negotiating onthese fees.
Maybe they're like, we don'twanna pay as much to the
company, so our staff willbasically just pay higher fees.
That's a very normal thing thatwe see. The last set of fees are
the most obscure. It is verycommon based on what I've seen
where the fund options in yourfour zero one k aren't really
(02:55):
options that you're gonna see inthe public market. So when you
see a lot of mutual funds thatare out there, if you can't just
publicly buy the same exactmutual fund with the same exact
ticker, be suspicious.
They might say, well, this isthe mutual fund version of the S
and P 500. Well, it's like, whycan't I buy that fund? Well,
it's special for our four zeroone k plans. When it's special
(03:16):
for a four zero one k plan is,to me, that's a red flag saying,
oh, so you've got higher feesbaked in here, and I've got
limited options, so I can't domuch with it. Yikes.
So in those situations, theseare called 12 b one fees.
They're C share mutual fundsthat typically have, I mean,
anywhere from a half a percentto 1%, maybe even more, but
(03:37):
that's a fee you're paying everysingle year. So, yes, it is
possible if constructed thewrong way to pay around two or
3% in your whatever employmentcompensation plan is. Is it
common? No.
But you still need to know yourfees.
David (03:53):
Can you tell us how all these fees how do they, like,
erode your savings or yourbalance or the value of your
account?
Mike (03:59):
Yeah. So you know how we talk about sequence of returns
risk?
David (04:03):
If you
Mike (04:03):
don't know what that is, the sequence of the return
matters. So let's say youraccount is up. Great. Your
account's up, but then you justpaid fees. So let's say the
account's up 10%, or it shouldbe with the market, you paid 3%
fees, you only made 7%.
Mhmm. K? There's a compoundingeffect on that that can lead to
a lot less money when youretire. And when I say a lot
(04:26):
less, I mean significant less.
David (04:28):
Like 6 figures less.
Mike (04:29):
Yeah. Potentially. Layton, would you do just a quick favor
and just say, let's put a100,000 in at age 30 years old.
K? And what the compoundingdifference would be if they had
one, two, or 3% in fees.
And just as let's assume a 10%average growth on the portfolio,
just to make really simple math.Just throw it in chat GPT, and
(04:52):
and let's see what that does.Just we're doing this live real
quick, and then we'll talk aboutthat. But so that's that's one
part of it is you're missing outon upside potential. Mhmm.
K? Now the second level isaccentuating the losses. Those
fees are coming out regardlessof if you like it or not. So if
the markets go down 10%, ittakes an 11% return to break
(05:13):
even, not the end of the world.But if the markets go down 30%,
it would require a 43% return tobreak even.
So the deeper it goes down, theharder it is to recover. You
with me so far? Yep. So themarkets crash every seven or
eight years. We know that.
If the markets go down, let'ssay, 3032%, somewhere around
(05:34):
there, and you take out three or4% in fees, you're now down,
what, 34% or so? That's a 50%return to break even. Five zero.
And you're paying fees on theway up as well, so it might take
a couple of years just torecover. So fees, if they're
high, can accentuate the lossesmore than low fees, but fees in
general will accentuate lossesbecause they're paid regardless
(05:57):
of market conditions.
So roughly speaking, Leighton,if if we had, let's say, a
100,000 in there, I mean, 1%fees versus no fees, what would
that roughly look like?
Layton (06:09):
So 100,000 for forty years, and we do an average
annual return of 8%. With nofees, you're gonna get roughly
2,000,000. But with 1% annualfee, you'll get a roughly
1,500,000.0. So the differenceafter forty years
Mike (06:26):
Oh my.
Layton (06:27):
Is $675,000.
Mike (06:30):
K. Now let's go to 2% fees.
Layton (06:33):
And the future value with 2% fees is you're barely
breaking a million. That's ahuge difference. So the
difference is $1,140,000 overforty years, and eight percent's
average. That's an averagereturn.
Mike (06:46):
8% is a very normal return to be in the market. I mean, the
S and P 500 since 2000 to todayhas averaged around seven to 8%
year over year. So if you wentall in on equities and you
ignored these target funds,these bond fund mixes, and all
that, you just went straight Sand P, which historically has
had reasonable growth, thesefees can really erode your
(07:08):
retirement, and the greater thefee is. So here's the big
takeaway. Know your fees.
If you have high fees in yourportfolio, in your four one k
specifically, you're gonna wantto roll them over to an IRA
probably, and then just buy thesame thing and just hold it
without fees, if that's yourstrategy. I am resolute in the
(07:30):
opinion that the only reason whyyou would pay an adviser fees is
to get a better performance hadyou not paid the fee. So a four
zero one k plan that's paying 1%in fees for an adviser you never
talked to makes no sense. Whenpeople pay us, which is a flat
fee, it's not a percentage ofthe assets. When they pay us
(07:50):
that flat fee, the expectationis the growth in the market that
they experience over a longerterm period of time, because we
can't promise this year or thenext six months.
Right? But over a multiyear bitthat they were able to get more
money out of their portfoliothan had they done it on their
own. That is the expectation.And all of the tax planning, all
(08:11):
of the health care, theinsurance planning, all of the
estate assistance, and makingsure that's all the all the
other stuff that we do, which Ithink has probably more value in
the overall situation, is icingon the cake because the money
management that they're payingus to do has exceeded what they
would have done on their own. Sowhy in the world are we paying
high four zero one k fees to anadviser that doesn't know you
(08:33):
from Adam, that doesn't knowyour specific situation, that's
not making tax planning advice.
They're just saying, oh, well,here's some funds. I like these
funds. Great. Keep paying me 1%.
David (08:44):
Would there be any situation where maybe you had to
keep contributing to your fourzero one k even regardless of
the fees to, like, to get thematch?
Mike (08:51):
You can't roll over or remove your four zero one k
until you separate employment orturn 59. And that's not even
always the same situation,because sometimes, if you're
especially if you're a teacher,you're an educator, you work for
a hospital, many times thosefour zero three b's, you can't
move until you retire. And soyou're stuck paying these fees.
At risk of making someone upset,I can't stand it. This part of
(09:14):
URISSA law.
I love URISSA law. I thinkthere's so much good in how
they've structured the four zeroone k to protect people. But to
keep someone in a specific planwhen they have no negotiating
power over it, I think is prettyrough. I personally am partial
to SEP IRAs, which is for a selfemployed plan, or a simple IRA,
(09:40):
which is where you're workingwith a small small business, so
a 100 employees or less, andoperate off that because you've
got more freedom, you've gotmore flexibility, you can move
things around. It's justdifferent.
And I know there are some fourzero one k plans where you can
do whatever you want in themarket. There's brokerage links
and things like that that youcan buy ETFs, and that helps.
But how many layers of fees arethere you it is worth? What was
(10:04):
it potentially, Layton? Amillion dollars of extra money?
$1,400,000 of potential extramoney if you got ahead of this
and negotiated differently. Andmaybe you don't get a match. And
if you don't get a match, andyou have, let's say, $10,000 to
contribute, maybe instead of youputting into a four zero one k
in that situation, you'redeciding, hey. There's no match,
(10:26):
so I might as well just do myIRA contributions and my Roth
contributions for the yearbecause you can put that into a
system that has no fees. Feesmatter.
So it is possible. I hopeeveryone listening in will do my
homework that I'm gonna sign youright now, and that is just ask
what the fees are. Call up yourHR representative, your four
(10:49):
zero one k administrator.They're wonderful people.
They're happy to help, and say,you help me understand the fees?
And they'll probably break downthe adviser fees, the admin
fees, and all of that, but thendig deeper, and even ask if you
need to ask Grock, ask Chat GPTsaying, here is the mutual fund
or the ETF that I'm investing. Ican't find much on it. What are
the fees roughly? They might beable to help you find something
(11:11):
that you didn't know existed orhow to look for it. They can
walk you through that.
It's the beauty of AI is itoverexposes everything. Yes.
Fees matter. Sometimes someemployer plans can be expensive.
Look into it.
That's all the time we've gotfor the show today. If you
enjoyed the show, considersubscribing to it wherever you
(11:33):
get your podcast. Just searchfor how to retire on time.
Discover if your portfolio isbuilt to weather flat market
cycles or if you're missing taxminimization opportunities that
you may not even know exist.Explore strategies that may be
able to help you lower youroverall risk while potentially
increasing your overall growthand lifestyle flexibility.
(11:53):
This is not your ordinaryfinancial analysis. Learn more
about Your Wealth Analysis andwhat it could do for you
regardless of your age, asset,or target retirement date. Go to
ww.yourwealthanalysis.com todayto learn more and get started.
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