"The toll taken by 401(k) and associated mutual fund fees is staggering, and can eat up more than half your gains. With 401(k)s, there are usually more than a dozen undisclosed fees: legal fees, trustee fees, transaction fees, stewardship fees, bookkeeping fees, finder fees and more.
But that's just the beginning. The mutual funds inside 401(k)s often take a 2 percent fee off the top. If a fund is up 7 percent for the year, they take 2 percent and you get 5 percent. It sounds like you're getting more, right? At first, yes, but in the end the mutual fund wins.
As Jack Bogle, the founder of Vanguard explains it, "What happens in the fund business is the magic of compound returns is overwhelmed by the tyranny of compound costs."
If you contribute $5,000 per year, from 25 years old to 65, and the fund goes up 7 percent every year, your money would turn into around $1,143,000. Yet, you'd only get to keep $669,400, or less than 60 percent. That's because 7 percent compounding returns hundreds of thousands more than a 5 percent compounding return, and none of it goes to you. The 2 percent fee cuts the return exponentially. In the example above, by the time you turn 75 the mutual fund may have taken two-thirds of your gains.
Bogle puts it like this, "Do you really want to invest in a system where you put up 100 percent of the capital, you take 100 percent of the risk, and you get 30 percent of the return?"
"Explaining 401(k) Fees
...Investment fees, sometimes referred to as investment management fees, tend to be the most expensive fees. These are the fees you are paying the company who handles your 401(k) to manage your funds, and they typically are assessed as a percentage of assets invested, meaning the more your 401(k) grows, the more you will pay in investment fees. These fees are automatically deducted from your investment returns.
Typically noted as plan administration fees on your quarterly statements, administration fees are the costs associated with the day-to-day operation of your plan. Record keeping, accounting, legal and trustee services are all paid for under the umbrella of administration fees..."
When considering fees associated with their 401(k) retirement plans, it's important that investors recognize these fees will escalate as their investment returns increase."