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I'm evaluating rolling over my old 401(k) into a self-administered IRA. I know the general costs and benefits (mostly benefits, in terms of increased flexibility, as stated here), but I'd like to see if I can precisely quantify the difference.

In particular, I'm curious as to the difference in administration fees for positions held at the same broker/account manager (Vanguard, Fidelity, etc). I've heard that 401(k)'s are much more expensive, i.e. double or triple the cost of IRAs held at the same funds. In other words, even at the same provider it makes sense to roll over your 401(k)'s into an IRA.

To take a concrete example, I can easily find the admin cost of the Vanguard 500 Index Fund Investor Shares (VFINX): it's a super-low 0.18% a year (see here). Can someone tell me what I'd be paying if I was invested in that fund as part of a 401(k) plan?

Even if you don't have links with Vanguard-specific information, it probably helps if you post links for other companies, since other readers are likely invested with those.

Thanks!
/YGA

6

You're confusing 401k administrative fees with fund expense ratios. Generally speaking, a rollover IRA from a discount broker has no administrative fees today. In the past, some brokers have charged nominal fees.

In the Vanguard example, as a personal investor, you'll be investing in VFINX or, if you have a large account, the Vanguard 500 Index Fund Admiral shares (VFIAX), which has a 0.07% expense ratio. If you were part of a huge 401k plan, you could possibly invest in an institutional-class version of the same fund, such as VINIX, if your company's plan in aggregate had a substantial investment.

When you're buying index funds, don't forget ETFs. They generally offer really low expense ratios, and many brokers are allowing you to trade specific ETF families for free.

  • To add to an already solid answer. The 401K fees are on top of the fees included in the fund's expense ratio. The amount of those fees will vary based on what your employer negotiated, but often dwarfs the expense ratio. If you are already invested in the 401K, one way to estimate the fees is to compare the prices the 401K company quotes on the fund with the price of the same fund on the market. The difference is their markup. – JohnFx Jan 17 '11 at 16:34
  • Fair enough, but do people have ballpark figures on what are the admin fees? At the end of the day I don't care if what I pay is called an "admin fee" or an "expense"; I just care that I am forking over cash. – YGA Jan 17 '11 at 22:24
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    The last time I had a 401k, the account maintenance fees were like $4-7/mo. Some employers provide crappy 401k plans with all sorts of junk fees, or junk fees combined with expensive mutual funds, which kick-back money to the employer or financial advisor. It's safe to say that an IRA will be cheaper in the vast majority of situations. – duffbeer703 Jan 19 '11 at 1:29
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It depends on the 401(k) provider. They are the ones setting the fees. I'd be surprised if the 401(k) fees for Vanguard specifically were lower through a 401(k) than they were directly.

  • 1
    +1 right - The provider has fees separate from underlying funds. The OP should be asking the company's HR to answer this, not us. – JTP - Apologise to Monica Feb 13 '12 at 1:46

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