Heads Up: The Fed continues to raise rates — up 3% this year — making credit card debt even costlier.
Pay it off today with a low fixed-rate personal loan. View your rate —>

What Is a Good 401(k) Expense Ratio?

December 04, 2020 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Is a Good 401(k) Expense Ratio?

The expense ratio of a 401(k) plan is the amount an investment company charges investors for managing the fund. A total of administrative fees for the fund’s expenses, this rate is usually stated as a percentage-per-year.

In general, the lower the 401(k) expense ratio, the better. But it’s tough to say what paying too much might be—that answer lies in trying to assess how much an investor should be paying and what typical rates are. A July 2019 CNBC article found that 95% of 401(k) investors pay fees associated with their plans, with the national average for 401(k) fees .45% of all total invested assets.

To help determine whether a 401(k) expense ratio is good—or even reasonable—there are a few facts and strategies investors might want to look into.

What Are Reasonable Fees for a 401(k)?

401(k) expense ratios are calculated by dividing a fund’s operating expenses by the average total dollar value of all assets in the fund.

Expense ratios can vary among plans for a variety of reasons, including how the 401(k) account is managed. In passively managed funds (where a portfolio mirrors a market index), the expense ratio should typically be lower as compared to actively managed funds which is roughly between 0.5% and 1.0% (where a fund manager employs different buying and selling strategies). Generally, this is because more work is being done on the manager’s part in an active strategy vs. a passive strategy.

Over time, just one or even half a percentage point could potentially make an impact on a retirement account. That impact could in turn mean the difference between retiring when planned, vs. working a few more years until the overall investment grows. A lower expense ratio could help an investor maximize their 401(k).

For example, a Government Accountability Office analysis found that someone who invests $20,000 every year for 20 years in a 401(k) plan that costs 1.5% per year to operate is likely to end up with 17% less than someone whose plan costs just .5%. The analysis concluded that after 20 years, that half a percentage point meant the difference of more than $10,000.

How To Reduce Your Expense Ratio

Before an investor can attempt to reduce their expense ratio, they need to be familiar with what it is.

Until relatively recently 401(k) expense ratio information was not public, and even now it can be somewhat difficult to locate. In 2007, the Securities and Exchange Commission (SEC) approved an amendment requiring the disclosure of these fees and expenses in mutual fund performance and sales materials.

Today, there are a few ways to get the information—and take action:

•   Read the fine print. Look closely at 401(k) participant fee disclosure notices, which participants should receive at least annually with any plan. Or look for the current information in a funder’s prospectus on their website. Building on the 2007 amendment, the DOL introduced a rule in 2012 to improve transparency on the fees and expenses to workers in 401(k) retirement plans.
•   Refer to expert sources. Today, many websites and trusted resources, like Bloomberg , have guides with comparisons on the rates and overall generosity of 401(k) plans.
•   Ask outright. Investors seeking more information might also choose to call their fund’s client services number directly to get the most up-to-date lay of the land. Investors who work with a financial advisor can also ask their advisor for this information, as well as their opinions on these expenses.

401k Red Flags

Armed with information, investors can feel empowered to read these hard-won disclosures for any potential red flags:

•   One issue, for example, would be corrective distributions—or when a company returns a portion of its 401(k) distribution made by highly-compensated employees (HCE).
•   In and of themselves, corrective distributions aren’t a big deal, but if they occur frequently, it could indicate that the plan isn’t being carefully monitored by those at the helm, or the sponsor might not be as attentive to the plan’s requirements as they should be.

It can also be helpful to periodically look at the funds being offered by an employer, provider, or broker to see if there is a similar fund that comes with fewer expenses. For example, Charles Schwab has an average 0.04% expense ratio, relatively lower than the majority of brokers out there.

For investors whose 401(k) plan is not through a current full-time employer, they may also want to look at offerings from other brokers, as switching may offer enough of a savings to be worthwhile.

The Takeaway

There’s no magic number that indicates a 401(k) expense ratio is too high or just right, although knowing the most recent average 401(k) fees can help give context.

Under federal law, employers have a fiduciary duty to offer reasonably priced options and to monitor the quality of the 401(k) plan they offer. The more an investor knows about their current plan, the better equipped they are to make compelling arguments for how to improve their plan.

A 401(k) is only one piece of the retirement puzzle. There are many ways for an investor to reach their financial goals.

SoFi Invest® offers a broad range of retirement investing options, including active or automated Traditional IRAs, Roth IRAs, and SEP IRAs, as well as a robust suite of planning and investment tools.

Find out how SoFi Invest can help members plan for retirement.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“SoFi Securities”).
Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, please visit https://www.sofi.com/legal/.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.


All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender