Should I Invest In My Company's 401(k) Or Get It Alone?

Crapple writes:

I’m 27, looking to start planning for retirement. My company has an arrangement through The Hartford group for our 401K and I read your article on Fund Level Expenses and how the broker will be earning compound interest on MY compound interest. I also ran across this article while researching:(and it also links to a Mutual Fund Expense Analyzer that might be handy for other Consumerist readers). The article is talking about getting yourself involved in an Index Fund that would have fee’s of around .19% or so and going it alone.

Most of the 16 investment options I have through The Hartford have a fee of over 1% (many over 1.25%)…

But to undertake the medium-high risk plan I’ve devised, I am able to keep my fee’s around .91%. I’m about 30-35 years from retirement, and of course I’d like to get the most bang-for-my-buck. But I’m really REALLY green in this area. Now, my company DOES offering matching up to 3% of my wage, and will then match HALF of what I contribute up to 5%…so for every 5% I invest, they’ll match 4%.

I don’t know how to calculate all this, but I need to know if I’m better off sticking with my matching plan in my company, or if I should go it alone with something that has a much smaller fee? I don’t have a lot of up front capital to invest, so maybe that means I wouldn’t even HAVE the option of going it alone. But I’m also hoping to move in about 4-5 years from where I live, and I would have to change companies to do so…so I doubt I’d be fully vested by then, but I figure that starting something now is better than nothing.

If you don’t feel able to point me in the right direction, I’ve read a lot of comments about other investors on the site and was hoping you could pose this to them as well so I could get some feedback.

Thank you!


Matching policies vary by plan so you’ll have to read the plan documents very carefully to figure out what’s up. UPDATE: But you should probably take the match while you work there, then roll it over into a 401k after you leave and invest it in whichever low-fee fund you like. I’m going to go ahead and assume that your employer won’t continue to match after you don’t work for them. Since you think you’ll only be around there for 4-5 years, you’re probably better off going with a low-fee fund. While the employer won’t keep matching your investment, the fund will still keep chomping away at your capital through its compounding fees.

For more information on how seemingly innocuous fund fees can devour most of your retirement fund, read our previous post, “How Your 401(k) Is Ripping You Off.”

(Photo: Getty)


Edit Your Comment

  1. MercuryPDX says:

    While the employer won’t keep matching your investment, the fund will still keep chomping away at your capital through its compounding fees.

    At which point, you should roll out your money… and the matching company funds, to a low fee fund. It’s 4-5 years of “free money” you’d be crazy to not take advantage of.

  2. enm4r says:

    @MercuryPDX: Exactly. If you aren’t taking the free 4% of your income, can you give it to me?

    Invest with some conservative low fee options in your current 401k to get the max match of 4%. When you leave, roll it over into it’s own separate IRA where you can invest in whatever low fee fund you want.

    Your company is holding their hand out with free money, take it.

  3. joeblevins says:

    100%, stay in the 401k where you get the match.

  4. noquarter says:

    @MercuryPDX: How does someone go about rolling money out of a 401(k) unless you have another job with another 401(k)?

    I looked into this recently and was told that, for my employer’s particular plan, it couldn’t be done.

  5. You’re an idiot if you don’t capture the matching. That is the optimal way to build wealth – contribute to your corporate 401(k) at least up until the matching %, if only because it’s free money. Even if “matching 5%” means 2.5% in real contribution like most will, that still easily trumps the costs of the investment itself.

    With respect to post-employment, low-cost index funds typically outperform those with higher costs if you hold all else equal. In most cases, the low-cost index fun wins the day.

    All else rarely is equal, of course. Companies with incredibly low cost basis experience greater operational risk, though that’s difficult to compare across corporations. Portions of performance are related to the strength of the asset managers’ ops processes – the “investment percentage,” cash management, and settlement processes all impact return. Errors made by staff in capturing order volume etc. are billed to the fund and detract from performance. There is a reason why some companies seem to work magic; strong process contributes to good return.

    Finally, get a real advisor. Consumerist isn’t accountable in 30-35 years, and none of its contributors have demonstrable financial credentials. That’s not an insult. It’s simply career choice, and Consumerist editors are not career financial professionals with the background to make a truly positive impact on your retirement funds.

  6. laserjobs says:

    Company Matching = Free Money

    Maximise the crap out of the company matching then roll it out.

  7. AnneCA says:

    Not only the matching, but the tax advantage of a 401k plan. As others have said, you can roll over to an IRA when you leave.

  8. NotATool says:

    Also, you can probably put much more pre-tax money into your company’s 401(k) than you could into an IRA. Saving on taxes is something to consider as well.

  9. MercuryPDX says:

    @noquarter: You roll it out into an Individual Retirement Account (IRA). I rolled out my Ex-ex company’s 401K into an IRA with Washington Mutual. When I got laid off at my Ex-company, I waited until the end of the quarter (when the matching funds are added), then rolled it out into the same WaMu IRA.

  10. NotATool says:

    @noquarter: You don’t need another job or 401(k) — once you leave a job, you can roll over your old 401(k) to an IRA from any brokerage.

  11. Beerad says:

    @joeblevins: Agreed. A slightly higher fee will be more than offset by the matching contribution from your employer. This applies even if you leave and don’t roll your 401(k) somewhere else — yes, the higher fees will still apply, but your employer’s prior contributions will still justify it (assuming reasonable growth).

  12. UpsetPanda says:

    I started reading about 401(k)s because I’m about to sign up with my company. It’s important to start young, and start with a good match…so go for the company’s 401(k). Seriously. Saving a little bit of money right now won’t matter in the long run. It’s like buying a car for $3,000 and not getting full insurance on it. What happens when you get into a crash and you don’t get anything back because you didn’t have the coverage? You’re out of a car, and you don’t get any money for a new one. Look at the bigger picture.

  13. MercuryPDX says:

    @MercuryPDX: Important to note that you need to find out when your company does it’s match (Quarterly? Yearly?), and wait until you confirm that their match has been added before you move it.

  14. Laffy Daffy says:

    Take the match!

  15. Beerad says:

    And yes, as many others have pointed out, the tax benefit alone is probably worth it.

  16. typetive says:

    If you make 50K per year, you’re contributing $2,500 tax deferred. They’re matching that (from what you said) with $2,166 (100% on the first 3% and then 50% on the other 2%). How can you turn down over $2K a year? It would more than cover any hulking plan fees.

    (I just chose that number because it was easy to do the math.)

    Most plans have 20%-25% vesting per year, so after 4 years you should be able to take most or all of their matching. If the vesting is any longer than that, carefully evaluate whether or not you’ll actually get that matching fund.

    Roll it over into an IRA of your chosing when you leave.

  17. UpsetPanda says:

    Oh and I also read this very important thing…. when you leave your job, DO NOT take out the money and then roll it over. Directly roll over the money to the IRA. As soon as you take it out, it becomes taxable.

  18. Alexander says:

    I just recently opened my 401(k) at work. They do it through Tranamerica Retirement Services. The company will match 100% of your contribution up to 6%. What I found overwhelming was what investment to choose from. They gave me something like 20 choices and they were all unknown to me. I just picked one for the time being just to open the account. How do I decide which one to choose? Should I choose one or split everything into various investments?

  19. Corydon says:

    @ADismalScience: Finally, get a real advisor. Consumerist isn’t accountable in 30-35 years, and none of its contributors have demonstrable financial credentials. That’s not an insult. It’s simply career choice, and Consumerist editors are not career financial professionals with the background to make a truly positive impact on your retirement funds.

    Any advice on how to do this? I’m getting to the point where the decisions to be made do not have obvious answers.

    I assume that going to friends for advice (even if they are professionals) isn’t a good idea for the same reason that lending money to friends (that you expect back anyway) is a bad idea.

    So what do you look for in a good advisor? And what should they be charging for their services?

  20. IphtashuFitz says:

    @UpsetPanda: Very good point.

    Most 401(k) forms for closing out accounts will give you the option for a lump sum or a rollover to a qualified account (or a combination of the two). What you’d want to do is get the rollover. You’ll have to tell them the name of the financial institution that your IRA is with. Then they’ll cut you a check payable directly to that institution. So if you’re going to roll it over to an IRA with T. Rowe Price (no recommendations here, just picking a random IRA provider), then your companies 401(k) would cut you a check made payable to “T. Rowe Price FBO Crapple”. FBO = “For Benefit Of”. They’ll then deposit that into your IRA. Of course check with your IRA provider first for any specific requirements. If you don’t have an IRA provider then pick one and contact them before closing out the 401(k). Let them know you’ll be wanting to open a new account via a rollover and they’ll make sure you get everything done right. After all, they’ll be happy to get a new customer out of you.

  21. UpsetPanda says:

    @alexander: If you’re young, you should choose more high-risk investment options because there’s more to gain and more time to recoup. Given that, I second what @ADismalScience said: get a real advisor. None of us are accountable either, and this isn’t “how to pick the best thermos,” it’s money and finances and you should never leave those decisions to a bunch of people on a blog.

  22. MercuryPDX says:

    @alexander: You should do a risk analysis and pick the fund(s) that closely matches the amount of risk you are willing to take.

    @Corydon: This site should get you started: []

  23. noquarter says:

    @MercuryPDX, and @NotATool: I guess my situation is a bit unusual, but it might be a warning to others. I set up contributions to the 401(k) – as everyone suggests – in order to take advantage of the free matching contribution money. But then my employer stopped matching contributions, and now they’ve increased the admin fee.

    And, as far as I can tell, my only way of getting the money out and into a better investment is by quitting my job, because rollovers aren’t allowed if you’re still an employee.

  24. @Corydon:

    Wealth management advisory services focusing on long-term wealth and retirement are freely available. There is a lot of irrational fear out there, but virtually every bank in the world is attempted to expand their advisory business. Your local bank branch probably has planning and advisory services available, and consultations are inexpensive.


    That article provides some of the basics. I can’t imply endorsement and suggest a firm due to my professional background, so let me just say some general things:

    Make sure you’re personally comfortable with your advisor. If you don’t feel like you can trust him/her, walk. Lots of fish in the sea, and you’ll never be comfortable with your investments if you can’t trust your advisor.

    Benchmark your advisor. If his fees or poor performance are an issue, bring it up with him. If you don’t get a good answer, move your money; advisory services gobble each others’ clients with sharklike precision. It’s to the point where there are “shock teams” of professionals who work against cease-and-desist orders to move advisors with good clients bases to their firms.

  25. mmcnary says:

    I really all comes down to risk and your ability to tolerate it. High risk funds have traditionally paid out more over the long run, whereas low risk funds are more stable but pay less. If you have 30+ years until retirement, you should put a larger percentage of your investments into riskier funds. You have plenty of time to weather fluctuations in the market.

    Your documentation from your plan provider should have a chart that displays the level of risk associated with each fund. There are also some really good investment calculators on that can assist you.

  26. LorneReams says:

    With them matching 4% you are getting an instant like 80% ROI for the fee cost of what? 2% at most? Think about that.

  27. shadow735 says:

    @MercuryPDX: Agree, go with the plan your company gives then roll it into a noo fee ira or some other plan that has the risk factor you want to focus on.
    Free money is free money, sorry but I doubt fees will be high enough to errode the free money your employer is giving you

  28. mdkiff says:

    I usually love the advice on this site, but you missed the boat on this one, Consumerist. The comments seemt o have picked up the slcak, though.

    You would be INSANE not to contribute at least enough to maximize the matching. First, 4% of your income for free is easy money. Second, 401(k) contributions are pre-tax, so you lower your tax liability for the year. To equal your investment with post-tax money would take $1.25 or more (depneding on your tax bracket) for every $1.00 you put in your 401(k).

    Even if you can put money into an IRA pre-tax, those max out at $5,000 (versus $15,500 for a 401(k)), and nobody is going to give you another 4% of your salary to put into an IRA.

    So, pre-tax money and matching – the odds that you will pick “winning” low-expense funds on your own that increase in value so dramatically so as to overcome the benefits of the 401(k) is almost too small to count.

  29. IphtashuFitz says:

    @alexander: Diversifying is always a good thing, so you really should split it among multiple funds. The tricky part is figuring out which ones to choose from. Your 401(k) provider should provide you with documentation of the different funds, including occasional summaries that show how well (or poorly) they’ve done over the past few years. That’s one good thing to look at. Another thing to think about are the different types of funds that are available. At a younger age, investing a bit more in higher-risk higher-performing funds may make more sense. But as you get older you’ll probably want to start putting more of the money in more stable moderate-growth funds. Most of the 401(k)’s I’ve had the chance to invest with have had around 10-20 funds to choose from. I usually split mine fairly evenly among 5-7 different types of funds depending on the types that were available and their past performance.

  30. Ben Popken says:

    Post changed to recommend taking the match while he works there.

  31. @ADismalScience:

    And to clarify one of my points:

    Comfort is important for so many reasons, and one of the largest is it suppresses transaction volume. Congressional studies have shown that consumers are terrible at “timing” the market and often make the worst possible decision at a given time. They sell low and buy high.

    I attribute a portion of this behavior to discomfort with financial professionals. When the portfolio is down, retail investors frequently assume that they know better and try to get out. Despite advisor suggestions, they sell at the bottom instead of buying “on sale.” Comfort and trust with your advisor is likely to get your finger off the trigger, even if you’re never quite capable of putting the gun down.

  32. copious28 says:

    Another alternative: I have heard some advisors say get the free money in your 401k (and depending on your income/tax level), you can put the next $5K in a tax-deductible, traditional IRA. You will still get a tax benefit for it, and you still get the free money, but by no means do you have to pay the high fees on all your money.

  33. Alexander says:

    Thank you everyone for the advice on what investments to choose! Yes, Transamerica provides tons of info on each investment, risk factors, performance and all. I’ll study them a bit and take the advice into consideration. I’m 30 so I think I’ll lean a bit more towards riskier investments in hope of higher payoff.

  34. UpsetPanda says:

    @noquarter: Are they actually allowed to stop matching? Check on this.

    @mmcnary: what mmcnary said. If you’re not comfortable with high-risk, go a little lower. But keep in mind that 10 years at low-risk might make you feel better, but won’t pay as well.

  35. mdkiff says:

    Another Consumerist success story…

    /pats everyone on the back

  36. cef21 says:

    Do the 5% to get the match and see if they have an index fund alternative — these tend to have low fees. Ignore the hype over the performance of the more expensive funds.

    Everything you save over that 5%, put into a Roth IRA at a low-cost mutual fund company, like Vanguard. If you want to diversify outside of the S&P 500 (which you should), do so with the money you put into your Roth. You’re young enough that the lion’s share of your retirement should be in a broad-based stock portfolio.

    Don’t buy anything esoteric and don’t let anybody talk you into buying life insurance as an investment. The only reason they’re talking to you is that the commissions are huge.

  37. teh says:

    @IphtashuFitz: Most financial institutions will even work with your former employer directly. You can go into institution X, tell them that you have a IRA that you’d like to rollover, then wait for them to do the work. It takes a few weeks, but it gives you a little more flexibility when shopping for brokers.

  38. savvy999 says:

    Be extremely diligent in reading the fine print of the company’s plan, specifically reading for anything about getting out of the plan and vestment schedule.

    Just sayin’, don’t get tripped up by a minimum vestment time (say, if you leave before 5 years, you forfeit the entire matching funds amount), or a non-withdrawal clause. My current company’s plan has both– no matching funds until you’ve been here at least one year, total vestment after 5 years, and if your account total reaches $15k, you can’t roll it out even if you leave. (The last one, I’d like to see stand up in court if push came to shove…)

    Just things to consider and watch out for.

    But yes, definitely take the match, diversify, and since you’re so young, go for a mix heavy on stocks and international funds. Slowly and steadily you’ll build a nice nestegg.

  39. QuantumRiff says:

    Bastardized math:
    Lets assume you put in 100/month (or 1200 a year).
    Your employer would put in 80/month (or 960 a year).

    If your employer’s 401k charges 1.25% that becomes $2160*0.0125 = $30, so you have $2130 netted

    If your 401k can get down to even 0.5% $1200*0.005 = $6 (remember you don’t get your employers match) making your total $1194 netted for the year. Thats a difference of almost $1000 the first year!

  40. NotATool says:

    @noquarter: You are 100% correct, you cannot rollover your 401(k) to an IRA until you’ve left your job. Same thing happened to me in an old job…bad 401(k) provider, but I was stuck with them until I left the job.

    But, while you’re still in your job, might as well take the free company match and take advantage of the tax savings!

  41. NotATool says:

    @noquarter: Sorry, didn’t get all of your post — that sucks that they took away your company match and have your money hostage in your 401(k). At that point, you’re just getting the tax savings from it. I’m not sure what you can do at that point. I would see a tax advisor or lawyer on that one. They may have violated the terms of the plan if they stop contributions.

  42. Scuba Steve says:


    And you can wait up to 60 days to do it!

    //I think

  43. Skellbasher says:


    Keep in mind that just like savings interest compounds positively over time, 401k expenses also compound negatively over time.

    That 1.25% per year that’s lost in fees and expenses is 1.25% less starting capital to appreciate the next year, which affects the overall ROI.

  44. smythe says:

    Many places you need to stay for 5 years to become fully vested. Some companies do this as a graduated rate, vesting a portion for the amount of time your there and some do the full amount at 5 years leaving before that will get you nothing. I would check into that first, if your not going to stay more than 5 years and you wont get to keep any of the matching then go off on your own.

    Otherwise you have to take advantage of the company matching, from what you poseted is sounds like they 100% match until 3% and then match half until 5%. So you should put at least 7% in with your company to get the full match. Then if you choose you can open your own account and invest more in their if you choose.

  45. @ADismalScience: Very few financial professionals that are going to serve a young person at the start of their career are going to be accountable when he reaches retirement. Nature of the business.

    Best advice. Everyone, work for the federal government for 3 years. You get the Thrift Savings Plan, which is a 401K in index funds and bond funds. Very low costs (I think I average, across the 3 funds I’m in about 5 basis points in fees). After 1 year, they match give you 1% of your salary into it. Then match %age for %age up to 3 (so at 3% contribution they give 4% for a total of 7%). Then match half 1/2 of %age up to 5, (at 4% you get 4.5%, and at 5%, you get 5%).

    After three years, it vests. If you leave the government, you can keep your money in TSP, as long as you have $100 in. You move to your new company. You do the free transfer from your matched 401K at new company into the government plan, reducing your free structure, and not getting dinged on taxes. Oh, and since it’s index funds, you diversify your risk if your company has a trollish 401K on their own stock.

    As the Guinness guys used to say, “Brilliant!”

  46. Boberto says:

    It’s not free money until AFTER he’s qualified to enter the plan and then AFTER he’s vested. Nearly six years.

    You need to make sure that you’re making as much salary as you can if you do stay with this company, and NOT to let the vesting time play into your decision to stay.

    I don’t know what your investment choices are in the plan, but mine are quite dismal. Furthermore, I can’t perform due diligence because many of the fees are hidden. Attempts to find out reveal very little.

  47. Skellbasher says:

    To expound on a previous comment that’s not showing up for some reason.

    Assume at age 35 you invested $10,000 in an investment that was guaranteed to make 10% yearly. This money was left alone for 30 years until age 65.

    At age 65, this would be worth $174,494.02.

    Now, assume .5% annually for expenses.
    At age 65, this would be worth $152,203.13. (-12.77%)

    Assume 1% annually for expenses.
    At age 65, this would be worth $ 132,676.78 (-23.96%)

    That measly 1% in annual expenses could cost you almost 25% in account value.

    It’s a good example to show why even a couple fractional percentage points can be significant when investing long term.

  48. chocobo24 says:

    Going to attempt and clear up a few things here. I work for a 401(k) recordkeeper and can hopefully shed some light on a few subjects.

    1) As covered – always take the company match. Contributing is good for lowering taxable income (assuming pre-tax contribs) and the limits are much, much higher than a IRA.

    2) Regarding ER match. Unfortunately, the plan documents are not hard and fast and CAN be changed by the company. Unless it is a Money Purchase Plan, the plan is NOT required to provide a fixed match or profit sharing. So, if a company is in trouble, they can suspend or stop company matching. However, I am fairly certain they can only do this with the beginning of each plan year and employees are usually notified well in advance.

    3) Withdrawals. This is where it gets hairy. There are essentially 2 tiers of rules which have to be followed Plan Document guidelines and IRS guidelines. Obviously, the PlanDoc has to have the IRS guidelines built into them to be considered a “qualified” retirement plan. It is considered a retirement plan and shouldn’t be made to easily access your account. The plan itself can restrict which sources you can access at certain times. Typically, they will divide this by pre-age 59.5 and post-age 59.5. For example, before 59.5 the plan may state that you can only touch money you have rolled in from elsewhere, but after 59.5 you can withdrawal everything (although they can still limit by source). Keep in mind this is only for ACTIVE employees. Once you seperate employment that should be a “plan event” and those restrictions no longer apply. Basically, don’t look to be rolling over the whole thing while still employed – it doesn’t happen often. There are also hardship withdrawals – but those are a whole other animal.

    4) Advice. Some plans have the option to receive advice built into them. This can be for a fee or can be free. It really just depends on the recordkeeper and the plan. All plans are required to have at least 1 conservative, 1 moderate, and 1 aggressive option to allow all parts to diversify. Obviously most have more than this. For the most part, the recordkeeper and your employer can’t advise you directly on what to do unless liscenced. While some think this is unfair, the employers are ulitmately protecting themselves. Just do some research or hire a pro to do the analyzing for you (as already covered).

    Hopefully this answers some of the above questions. Didn’t really get into too much detail – but I can. :)

  49. GearheadGeek says:

    @noquarter: I would look on them discontinuing the company match as a bad indicator of the company’s financial health. They’re making a decision to reduce the compensation to every employee who has a 401k, and overall I’d say the people who have a 401k are paying attention to their compensation (I know that’s a generalization but I’d say it’s better than 50/50.) That’s a reason to be looking both because your company is skimping on compensation compared to when you started, and because there may be reasons they HAVE to skimp on compensation.

  50. chocobo24 says:

    Sorry, forgot vesting. Federal law makes the MAXIMUM cliff vesting scheudle 3 years (meaning you are 0% vested until you hit 3 years and become 100% at that time). Graded vesting usually tops out at 6 years (gradually gain ownership of Company money each year). Again, this is off the top of my head – don’t cover it everyday. But those are the typical numbers.

  51. GearheadGeek says:

    @smythe: Actually he’d only have to put in 5% to take full advantage of his company’s matching.

  52. @Boberto:

    The vesting policy is not clear from the initial request. No assumptions please.

    All fees for 401(k) management are enumerated in the Prospectus. Look again.

  53. @ADismalScience:

    I should say, the specific fund’s management fees.

  54. timsgm1418 says:

    cant tell you how many times people I work with will say I can’t afford to have more than 2% of my income going into my 401k..Our company matches to 4%. I tell them the tax savings will make up for most of it and you’ll barely notice the difference in your paycheck. Would you say no to someone handing you a $20 with no strings attached? I immediately made my contributions equal what they would match and have raised the percentage every year. I completely agree
    company match = free money, and I’m all for that

  55. gvf says:


    You should ideally look for a “fee-only” financial advisor. (See wiki: []).

    I personally work with LPL Financial (, an independent broker/dealer and financial service company. They don’t sell proprietary products, nor do I make money through commissions. I represent the client first.

  56. crapple says:

    WOW! Thank you all so much! I didn’t get to see the posting until I got into work this AM. There is so much information that you have all left and I wanted to thank you all. I knew I wanted to find a planner, but I didn’t know about Fee-Only Advisors and was nervous of getting “taken”.

    I’ll definitely be taking the company up on the matching to it’s fullest extent. Whenever I leave, roll-over to an IRA without cashing it out (thank you for that specific tid-bit!). I’d love to get in on the Vanguard 500, that seems to be a great investment, but I think I’ll have to wait until I get a new employer and I’ll diversify my investments. Once my wife and I each get our 401Ks setup (different employers), we’ll find a Fee-Only Advisor to get our finances in order and get a firm budget in place.

    Again – thank you thank you THANK YOU!!

  57. douglips says:

    The trick to easily rolling over a 401(k) when you leave a job is to call up your preferred semi-cheap broker (e.g. Schwab, Fidelity) and say “I’ve got a 401(k) I’d like rolled into an IRA. Can you help me with that?”

    Then, watch them fall all over themselves helping you.

    I like Schwab because they have lots of zero transaction fee mutual funds. For regular contributions I use these, then every year or so I can make a big transaction into a very low cost index fund. No sense in paying $8.95 every month to buy into the low cost fund.

    So, for a year or so I’m paying .35% or .75%, then I pay $8.95 and transfer it over to a .19% expense fund where it will sit for 25 years.

  58. the wall street journal guide to personal finance is an excellent resource for these types of questions. index funds and target retirement funds are certainly easy and cost-effective, but they might not be an option in your plan.

    bear in mind that the financial rep (from John Hancock, whatever) handling your 401k options is not likely to provide the best, lowest-cost funds for you simply because they don’t earn as much commission for him.

  59. @timsgm1418: people are retarded when it comes to thinking long-term. (see: current credit crisis)

  60. zenmeta4 says:

    To address the primary question, you should first maximize your matching contributions. This will more than cover the additional expense.

    Another thing to consider is if your 401k plan is not offering a variety of investments and/or some low-cost investments, then send a friendly e-mail to the plan administrator. This is typically a mid-to-upper level manager in the HR or Benefits department.

    Why will they listen to you? They have a great reason to listen to you, they have a personal fiduciary responsibility to you and the other participants in the plan. That is a fancy way of saying that they are, at a personal level, legally responsible. Therefore, it is in their best interest to note your concern and raise the subject the next time the investment line-up is reviewed which is typically each quarter.

    Right now, “fiduciary risk” and “plan expenses” are red-hot topics. At the same time, the 401k provider industry in the US is becoming extremely competitive. I think that most plan administrators would seriously listen to your input.

    Also, when judging fees keep in mind that you should expect to have a higher expense ratio on in a mutual fund that invests in some sectors (technology, overseas, emerging markets) as these funds require more research. You should also expect lower a low expense ratio on a mutual fund that invests in domestic equities, bonds, money markets, and index funds. The point is, that a funds expense is an important aspect, but shouldn’t be your only aspect you consider. The potential for greater return, for instance in an emerging market, may outweigh the added expense.