How Much Should Your 401(k) Account Cost You All-In?

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The easiest decision in retirement planning is contributing to your company 401(k) account up to the company match.

You can essentially give yourself a raise while adding tax-advantaged funds to your retirement nest egg.

However, whether you should contribute beyond the company match — or invest in a Roth IRA or a taxable investment account — depends on the fees your 401(k) account charges you.

How do you determine what to do after securing the 401(k) match? That’s what a listener of the Clark Howard Podcast recently asked.

When Are Your 401(k) Account Fees Too High?

What do you do if your 401(k) account fees are substantial? A listener asked for Clark’s take on the Nov. 17 podcast episode.

Matthew in Texas asked: “My 401(k) expenses are 0.55%. I am already maxing out a Roth IRA with Fidelity and have additional funds to invest in retirement. Am I better off investing those funds in my 401(k) or in the Fidelity Zero Funds?”

Before we get to Clark’s answer, let’s review his normal checklist. Always, always, always invest enough money into your 401(k) to get your full company match if that option is available.

“It drives me bonkers when people have a 401(k) available to them with a match and they don’t even put in enough money in it to grab that match,” Clark says.

If your 401(k) fees are manageable, you can invest all the way up to your 401(k) contribution limit for the year before doing anything else.

Normally, Clark draws the line at 0.5% for your all-in 401(k) costs. That includes administrative costs plus the average expense ratio of your investments.

If you’re paying more than 0.5%, after securing the company match, you can skip straight to maxing out your Roth IRA contributions.


Matthew, the listener, is already maxing out his Roth IRA. Assuming he’s secured any available company match, should he max out his 401(k) contributions or invest in Fidelity Zero index funds (with no expense ratio)?

“If [the 0.55%] includes the cost of the investments, it’s a little on the high side, but you’re OK. If your 401(k) offers a Roth 401(k) option and you’re paying a 0.55%, that would probably be superior to doing the Fidelity Zero funds that ultimately, everything you have in them would be subject to capital gains tax,” Clark says.

“If you’re saying 0.55% before you breathe, and then on top of it you have the expense ratios of the investments, you’re probably better off being in the Fidelity Zero funds in an investment account and then having to pay the tax.”

What To Do if Your 401(k) Account Fees Are High

If your all-in costs for your 401(k) account are higher than 0.5%, here’s the order Clark suggests for your investing:

  1. Start with your 401(k). Contribute enough to secure your 401(k) employer match.
  2. Move to a Roth IRA and contribute up to the limit.
  3. If you have access to an HSA (Health Savings Account), contribute to that next.
  4. After that, it’s a toss-up between increasing the amount in your 401(k) with a higher-cost plan or going with a regular investment account like the Fidelity Zero funds, which will have no management costs at all that will come with a decent amount of embedded tax.

“If your expenses all-in on your 401(k) are higher than 0.5% for the expenses of the investments you’re in plus whatever administrative costs the employer passes on, you can [invest in a] Roth IRA a lot cheaper,” Clark says.

Final Thoughts

Most people don’t contribute to their retirement beyond the company 401(k) match. If you have a strong emergency fund and have already secured a company match, you’re in a great position. Anything else you contribute is a positive.

However, it is a great idea to find out how much you’re actually paying for the right to invest in your company 401(k). There is a percentage that should divert you to other options after the company match.

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