401K fee calculations

[MoneyJohn]

I got a new job and got enrolled in 401K. It's a Paychex plan for small employers. I am trying to figure out how much fees I will pay over the period of 'x' years. The agent is acting cagey when I asked him about the fees, just reiterating it is a great plan and I should not worry yada yada but that's making me suspicious.

Since there is no Self-Directed Brokerage account within the plan, I am really trying to figure out if I should opt out of the plan. Without knowing a complete fee disclosure yet, I will be paying 1.11% / ~$217 annually (including the expense ratio of the fund I will put money in). If there are other fees then it will add up. I want to calculate if I will be better off paying taxes to Uncle Sam and investing in a regular brokerage account using a tax-efficient index fund rather than paying someone that is not exactly working as a fiduciary. (I make this statement from the funds available in the plan.)

Does anyone have guidance on how I can calculate the fees? I thought a compound interest calculator should do the trick but didn't exactly work as expected.

Thanks in advance.

(P.S. - I will highly appreciate it if commenters refrain from making a generalized statement that I will pay more in taxes to Uncle Sam. I have already heard that a few times but without any evidence in numbers.)

 

[ctechbob]

My first question would be, does the company match? If they don't, you might be better off doing your own thing. If they do, I tend to lean towards contributing up to the match, and then if you still want to pour more into an account, then do your own thing with that.

 

[Lubener]

You might also want to check since many times fees are set at a reduced rate for any amount above a certain level. If that exists, that certainly would figure in to your calculations.

 

[spackard]

First result from Google: https://www.employeefiduciary.com/blog/paychex-401k-fees

 

[Donald]

If there is no match just open an IRA account at Vanguard and invest in index funds. They have many. Super low fees. Sounds like the 401K has fees for the funds and a custodian fee. Compounded over time fees take away a significant amount from what you could have had. They can do an auto deduction from your bank.

 

[Davejam]

(P.S. - I will highly appreciate it if commenters refrain from making a generalized statement that I will pay more in taxes to Uncle Sam. I have already heard that a few times but without any evidence in numbers.)

Money put into your 401k is money you won't pay income tax on in the current year.
You will pay taxes on withdrawls when you retire.
So, you have to figure out if that is a benefit to you. But generally speaking it is.
And generally the minimum recommendation is to put in at minimum what the company will match. Otherwise you are giving up free money.

A traditional IRA which was mentioned above is similar to a 401k, that you set up for yourself, and is independant of your employer.
You would pursue this if you were unhappy with your particular 401k plan and its fees.

Over 1% is high. But not absurdly so.

What is a 401(k)? Eligibility, contribution limits, and withdrawal rules

A 401(k) is an employer-sponsored, tax-advantaged retirement account. Employees can contribute wages and invest for retirement. Start investing today.

www.businessinsider.com

 

[BMWTurboDzl]

This isn't going to be easy because the fees are typically tiered based on account balance. So you'll have to decide how much* you want to save every year and estimate rate of return for your chosen investment vehicle of 401k vs Other (IRA Roth/Traditional).

As other have said it's a no brainer to at least take advantage of company match. Company match is 100% return minus negligible fees. You'll never beat that.

*Contribution limits

 

[Kuato]

1.11% doesn't sound like much at first, but it is, especially as your balance grows. Add that to the fees you'll pay for the funds themselves, plus the dude being "cagey" and it screams to be avoided.

Only reason I can think of to take it, is if there's a decent match. You could take the match, then every [insert your time period here] roll your funds into another qualified retirement plan without the fees. Then roll your matching funds over once they're vested.

But if there is no match, or all that is too much work, then agree with the posts above to find a solid investment house (Schwab, Vanguard etc) that doesn't have fees and get a direct deposit each payday.

 

[JustinH]

What is the employer match?

If the employer is giving you 12 percent, thats free money. Max it out.

My employer gives 12 percent if I contribute 10 percent, so i'm socking away 22 percent of every paycheck.

 

[MoneyJohn]

Only reason I can think of to take it, is if there's a decent match. You could take the match, then every [insert your time period here] roll your funds into another qualified retirement plan without the fees. Then roll your matching funds over once they're vested.

I want to know more about this.
The employer match is 3.5% max. I was planning to max out all accounts and also suggest the employer put any pay raise into the 401K, but as you correctly pointed out, the guy being cagey made me suspicious.

How often can I roll over the funds and do I have to do all of them or in part? How does that exactly work? Do you have any link I can read up on? I ask because I will get a tax break on the contribution, so if I roll the funds over to a traditional IRA, there won't be any tax penalty? I would LOVE to do it. The funds in 401K are not great so I am just putting everything in S&P500. My usual portfolio is in the US and international index funds 70/30. I would really like to keep it that way.

 

[MoneyJohn]

My employer gives 12 percent if I contribute 10 percent,

That is great. I got 3.5% max.

If there is no match just open an IRA account at Vanguard and invest in index funds.

I already have a traditional IRA invested in VTSAX and VTIAX. I was hoping, I will max out 401K and convert part of the traditional IRA to Roth.

 

[Imp4]

If I've said it once I've said it a thousand times, this is a terrible place to ask for financial advice.

There is so much well intentioned but bad information in this thread.

It never ceases to amaze me how many people think this board is Bob Is The Money Guy.
None of these people know your personal circumstances and none of them have insight into the rules of your particular employer sponsored 401k plan. So none of them can give you well informed answers about what you should do.

Including me. The difference here is that I'll tell you that I can't help you answer your detailed questions.

But you can figure this out for yourself by getting a copy of your 401k summary plan description (SPD) from your employer. Read it cover to cover. Then head over to Bogleheads.com or Early-retirement.org and post your financial questions there.

As a side project, look around on those sites for how many people post questions about what oil and OCI to use for their car. Write down the tally of number of threads you find. Then reflect on why you find almost zero oil change related threads there. Because it's the wrong forum for that subject.

That'll give you an idea about the level of absurdity of posting financial questions to the BITOG hive mind.

 

[Kuato]

I want to know more about this.
The employer match is 3.5% max. I was planning to max out all accounts and also suggest the employer put any pay raise into the 401K, but as you correctly pointed out, the guy being cagey made me suspicious.

How often can I roll over the funds and do I have to do all of them or in part? How does that exactly work? Do you have any link I can read up on? I ask because I will get a tax break on the contribution, so if I roll the funds over to a traditional IRA, there won't be any tax penalty? I would LOVE to do it. The funds in 401K are not great so I am just putting everything in S&P500. My usual portfolio is in the US and international index funds 70/30. I would really like to keep it that way.

As Imp4 said, this may not be the best place to get investing advice. So don't take it from me, check out the links on this page:

Roll over 401k to IRA

You could also call a trusted investment organization (I mentioned two previously) and ask their representatives about how to enact this plan and roll over funds; they're the professionals and do it all the time.

3.5% match is pretty small; IMO put in enough to get the entire match, and invest whatever else you have, somewhere else.

What is the employer match?

If the employer is giving you 12 percent, thats free money. Max it out.

My employer gives 12 percent if I contribute 10 percent, so i'm socking away 22 percent of every paycheck.

Dang that's amazing! Can you share what company this is with?

 

[MoneyJohn]

Roll over 401k to IRA

You could also call a trusted investment organization (I mentioned two previously) and ask their representatives about how to enact this plan and roll over funds; they're the professionals and do it all the time.

Thank you for the pointer.

I knew and understand rolling 401K over after leaving the job but I was not aware you could do it while still employed. I will research more on this topic.

I asked my employer yesterday to get all fee schedule information so I can run the numbers.



And for those concerned, appreciate the concern. I follow many finance-related boards, including Boglehead (actually have all investments in Bogleheads 3-fund portfolio), in read-only mode. I am trying to get more and more informed.