6 Hidden 401(k) Fees That Could Be Draining Your Savings
- - 6 Hidden 401(k) Fees That Could Be Draining Your Savings
Catherine CollinsDecember 18, 2025 at 3:10 AM
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Many employees think their 401(k) is a free benefit because their employer provides it as part of their compensation package. However, 401(k) plans actually have built-in fees that can be hard to detect at first glance. According to the U.S. Government Accountability Office, these fees can reduce your overall investment returns, especially over a long time horizon.
Below are several different types of fees that you should be aware of when it comes to your 401(k), so you can avoid wasting your retirement savings. Additionally, we'll share several tips on how to lower your 401(k) fees.
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1. Plan administration fees
401(k) plan administration fees are the cost of actually offering the plan. Most employers use third-party services to manage 401(k) plans. These services offer online accounts, legal compliance, and customer service.
Sometimes, these plan administration fees are passed down to employees. Reference your plan's fee disclosure document to find the phrase "administration fee" or "administration services." Sometimes, these fees can seem small, such as $50 a year for the plan, but it's still money you're spending for the privilege of having a 401(k) plan.
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2. Expense ratios
Once you open a 401(k), the next step is to choose the funds you want to buy, like index funds or mutual funds. Every fund has its own fee called an expense ratio. These fees go to portfolio managers and the companies that manage the funds you purchase. You can research each fund's fees in its prospectus, a document that explains everything about a fund, including which companies it's invested in, who manages it, and the total cost.
3. Managed account fees
Some 401(k) plans offer advisory services or managed funds, which typically come with managed account fees. When you look at your 401(k) disclosure form, search for the term "advisory fee" or "management fee." It's common for some accounts to have a 1% management fee. While this may seem like a low amount, it's significant over the long term. For example, if there's a 1% management fee, and you have $100,000 invested, that means you're spending $1,000 a year just on management fees.
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4. Transaction and service fees
Other important fees to be aware of are transaction and service fees. These typically relate to 401(k) loans. There might be a loan distribution fee, which you can see on your monthly loan statement. Search for terms such as "individual service fee" or "transaction fee."
5. Recordkeeping fees
Recordkeeping fees are not investment fees. These are fees you might pay that cover the 401(k) provider's costs to generate statements, tax documents, and track your balance. Usually, your company pays these recordkeeping fees to the provider that manages its plan. Sometimes there will be a flat fee per participant.
Whether these costs will be passed down to employees depends on the size of your company and the type of agreement they've negotiated with the 401(k) plan provider. Search for "record-keeping fee" or "administration fee" in your account disclosures to see if you're being charged for this.
6. Revenue-sharing agreements
Revenue-sharing agreements create hidden fees that typically won't be listed on your 401(k) plan disclosure forms. In a revenue-sharing agreement, part of the expense ratio that you pay to purchase a fund goes back to your 401(k) provider. Usually, these fees are included in the expense ratio, which can make your costs higher.
To see if your 401(k) plan has revenue-sharing agreements in place, you have to ask your 401(k) provider directly. Research from the University of Texas at Austin found that 54% of 401(k) plans had at least one revenue-sharing agreement.
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How to reduce your 401(k) fees
To reduce your 401(k) fees, there are a few steps you can take. The first step is to switch to lower-cost funds, such as index funds, rather than actively managed funds with high expense ratios. You can also ask your HR representative for a fee disclosure form, so you can carefully review the fees you're currently paying.
If you have questions about your fees, set up a meeting with your HR department to ask questions. If there are no low-cost funds available on your plan, suggest that your company switch to a different 401(k) provider that has more options. This would not only benefit you but also your coworkers.
Bottom line
A recent survey by Beyond Finance found that almost 43% of respondents weren't sure what a 401(k) retirement plan is. That's not surprising, because 401(k) plans can be confusing, and the disclosures can have a lot of industry jargon. However, it's more important than ever to take the time to learn about your plan and the fees you have to pay. Making some small, simple changes in the fees you pay now could help you to retire comfortably in the future.
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