Retirement Retirement Planning

4 Hidden 401(k) Fees That Are Eating Up Your Earnings

Make sure you aren’t paying these sneaky costs.

reviewing document reports
Updated Dec. 18, 2024
Fact checked

Many savers build their retirement nest eggs through a 401(k). The tax-advantaged retirement savings account comes with many benefits. But if you aren’t careful, hidden fees may leach away your portfolio’s potential growth.

Take notice of the following hidden fees commonly associated with 401(k) accounts and learn how to eliminate them as you plan for retirement.

Steal this billionaire wealth-building technique

The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.

A new company called Masterworks is now allowing everyday investors to get in on this type of previously-exclusive investment. You can buy a small slice of $1-$30 million paintings from iconic artists, all without needing any art expertise.

If you have at least $10k to invest and are ready to explore diversifying beyond stocks and bonds,see what Masterworks has on offer. (Hurry, they often sell out!)

Administrative fees

Deacon docs/Adobe 100 dollars old and new

Administrative fees include the cost of managing the plan. Such fees are charged as either a percentage of assets or a flat fee per participant.

Generally, a flat fee is preferred to a fee based on the percentage of assets under management. That is especially true if you have a larger balance in your 401(k). But no matter how such fees are structured, any administrative fee attached to your 401(k) can eat into your savings.

Unfortunately, administrative fees are largely out of your control. The best you can do is lobby your company to choose a better plan that charges fewer fees.

If your company is unwilling to make a switch, you could opt to put more of your retirement money into an IRA of your choice instead of into your company’s 401(k). That can help you avoid the administrative fees.

However, if your company offers to match any portion of your contributions, it’s likely a good idea to take advantage of that opportunity before redirecting remaining funds to an IRA.

Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.

Investment fees

Annap/Adobe financial portfolio review paper with pen

Investment fees include costs associated with the mutual funds or ETFs that are within your 401(k). Although these fees can appear small, the reality is that they can add up quickly.

In order to avoid them, look at the expense ratios of the funds within your investment portfolio. The lower the expense ratio, the better.

Generally, a reasonable expense ratio for an actively managed portfolio ranges from 0.50% to 0.75%. But you’ll find much lower expense ratios through index funds and some target date funds, with many options below 0.10%.

If you discover that your investment fees are higher than you would like, think about switching up your investments.

Individual service fees

Robert Gavila/Adobe bundle of receipts over calculator

When you take specific actions within your 401(k) account, you might face an individual service fee. For example, you might have to pay an individual service fee when taking out a loan from your 401(k) plan.

In order to avoid individual service fees, read through the fine print of your 401(k) plan. With a clear understanding of your 401(k) fees, you’ll know when they apply and can choose to avoid actions that would lead to a fee.

For instance, just refraining from withdrawing from a 401(k) can help you avoid incurring an individual service fee.

Get a free stock valued between $5 to $200

Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.

Robinhood offers a method of investing called “fractional shares.” On its own, one share of a single stock could cost a lot of money, making it difficult to diversify. Robinhood allows you to buy pieces of stock instead, so you have the option to build a diverse portfolio quickly.

Let’s say you want to invest $250, as an example.

With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.1

Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.25% (as of 11/15/24) APY2on your uninvested cash3and the ability to buy and sell stocks 24 hours a day, 5 days a week.

Open and fund a Robinhood account and earn up to $200 in stock

12b-1 fee

borisshevchuk/Adobe calculator keyboard

The 12b-1 fee is often overlooked. It covers things like advertising and marketing costs. In some cases, these fees can be used to pay commissions to brokers and salespeople of particular mutual funds.

Whenever possible, avoid investing in a fund that includes a large 12b-1 fee. Unfortunately, these fees are common and can take a big bite out of your nest egg.

How to find the hidden fees in your plan

Tada Images/Adobe 401K Plans page on IRS website

Now that you have a little bit more knowledge about the fees lurking in your 401(k) plan, it’s time to take action. Here are some steps you can take to uncover the fees in your plan:

  • Read the fine print. Any fees attached to your 401(k) should b clearly stated in the documents associated with your 401(k) plan.
  • Review your statements. Read through any account statements you receive to track down potential fees.
  • Use an online tool. Some online tools allow you to analyze your retirement portfolio to highlight any fees involved.
  • Ask for help. Working with a financial advisor to review your 401(k) can help you get clarity on the fees within your plan.

Bottom line

magele-picture/Adobe 401k plan above coins

As you save for retirement, your 401(k) is likely to include a significant portion of your nest egg. With so much riding on your savings, it’s a good idea to get familiar with any fees attached to your investment portfolio.

Comb through your account to uncover hidden fees. When you find a fee, take action if possible to avoid overpaying going forward.

Masterworks Benefits

  • Invest in art like a millionaire for a relatively low cost
  • Art investments have outperformed the S&P 500 by over 131% for 26 years
  • Purchase shares of artwork by top artists
  • Hedge against inflation and diversify your portfolio