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401k Fees Calculator and Provider Comparison – free tool
401k Fees Calculator and Provider Comparison - a Free Tool
Adam Tzagournis, CPA · 2 min read
We recently released a 401(k) fee calculator, which is an oddly specific thing to build a tool for. The motivation? A cautionary tale – please don’t make the same mistake I did. 👇
Some background
A while ago I was choosing between 401k providers for my company. They each had different admin fees and management fees (that your employees pay) for the investments they offer to participants.
If you’re in charge of choosing a provider for your company, you need a way to compare the fees to determine the best choice for your employees’ 401k balances.
Provider A:
- high fixed admin fee per month
- index funds with low % management fees
Provider B:
- low fixed admin fee per month
- index funds with higher % management fees
Sounds simple right? Do some multiplication and you get your answer.
The problem
But here’s what I didn’t take into account:
The time value of money.
You can’t just look at these fees in a vacuum at a single point in time; they’re recurring fees each month/year. And since management fees are a % of the balance, they’re variable fees, not fixed.
This means as the balance grows in the future, the variable portion of fees also grows.
Rookie mistake on my part.
Luckily, the issue was resolved early on in the decision process. But I was disappointed I didn’t catch it immediately, and it could have been a big mistake.
Here are the things you need to take into account:
- provider annual admin fees
- % management fee of funds
- employees’ 401k balances today
- expected market return over time
A better way
The free tool we released does all of this for you.
It’ll show you things like how an extra $100 annual admin fee can mean $15,000 𝘭𝘦𝘴𝘴 in your 401k balance.
Hope it’s helpful!