Is a High-Fee 401(k) Still Worth Using Beyond the Match?

Your employer’s 401(k) charges 1% a year or more once you add the fund expenses to the plan’s administrative fee. You already contribute enough to get the full match. Should the next dollar go into the plan, or into an index fund in a regular brokerage account that costs 0.05%?

For most savers it should still go into the plan. The fee lasts only while the money is stuck there. When you leave the job you can roll the balance into an IRA and hold the same index funds you would have bought in the brokerage account. The tax benefit lasts until retirement. Four years at an extra 1% costs roughly 4% of the balance, and in most tax brackets 30 years of untaxed dividends and growth is worth more than that. The plan loses when you expect to stay in an expensive plan for decades, or when your tax rates make the 401(k) worth little to begin with.

What an expensive 401(k) costs

The largest source of plan-level fee data is the annual ICI/ISS Market Intelligence profile of audited 401(k) plans, built from Form 5500 filings. In 2023 the average plan in its sample had a total plan cost of 0.74% of assets. One plan in ten cost 1.26% or more, and one in ten cost 0.28% or less. Size matters most. Plans with under $1 million in assets had a median cost of 1.07%, and one in ten of them cost 3.31% or more. Plans with over $1 billion had a median of 0.25%. Because large plans hold most of the money, the asset-weighted average was 0.30%.²

The smallest plans, the ones this sample leaves out, are where costs run highest. A 2012 GAO survey found that sponsors of small plans paid an average of 1.33% of assets a year for recordkeeping and administration alone, against 0.15% for large plans.³

A plan average is the wrong number for your decision. It blends every fund on the menu, weighted by what other participants chose. Most menus have something cheaper than the average. Ian Ayres and Quinn Curtis studied 3,534 plan menus from 2010. Participants in the average plan paid 0.78 percentage points a year more than they would have in retail index funds. Someone choosing the lowest-cost diversified mix from the same menu still paid 0.43 points more.⁴ ICI cautions that its industry averages are not meant for benchmarking any particular plan.⁵ The number to use is your own: the expense ratio of the fund you would hold, plus the administrative fee. The section on reading the disclosure below shows where to find both.

What a 401(k) gives you that a taxable account does not

Take $1 of pay above the match, and call the fee inside the plan $f_p$ and the fee on an index fund outside it $f_o$. The money is stuck in the plan for $N$ years, then rolled into an IRA. It is spent $H$ years from now. Every account earns the same return $r$ before fees and taxes. Your marginal tax rate is $t_{\text{now}}$ today and $t_{\text{ret}}$ in retirement.

Traditional 401(k). The whole dollar goes in, and the balance is taxed on the way out:

Roth 401(k). Tax comes out first, and nothing is owed later:

Taxable account. The same after-tax amount goes in. Each year the fund pays a dividend at yield $y$, taxed at rate $t_d$. The rest is reinvested and added to the cost basis $B$. At retirement the gain over basis is taxed at the capital-gains rate $t_g$:

starting from $V_0 = B_0 = 1 - t_{\text{now}}$. Three things separate the 401(k) from the taxable account. The yearly dividend tax is gone. The capital-gains tax at the end is gone. For traditional money, you also gain or lose the difference between today’s tax rate and the rate you pay in retirement. Qualified dividends and long-term gains are taxed at 0%, 15% or 20% federally, depending on income.⁶ Higher earners add the 3.8% net investment income tax,⁷ and most states tax both. Those rates set the size of the tax benefit the plan fee has to consume before the taxable account wins.

Ayres and Curtis: 16% of plans fail a 35-year test

Ayres and Curtis’s Yale Law Journal article also asked when plan fees use up the tax benefit. Their answer is the most-cited number on the question: “fees are so high in 16% of analyzed plans that they consume the tax benefits of investing in a 401(k) for a young employee.”⁴ For unmatched dollars, they compared a 401(k) with a taxable ETF costing 0.15%. They assumed a 28% tax rate today, 25% in retirement, 15% on capital gains, a 5% return and 35 years. On those inputs, they found that a fund fee above 1.03% made the taxable account better. That held in 572 of their 3,534 plans.⁴

Two details matter. First, putting their stated inputs into their published formula gives a threshold of 0.96%, not 1.03%. We could not reproduce the exact figure, but both put the cutoff near 1%. Second, and more important, their model charges the plan fee for all 35 years. That is the right test for someone who stays with one employer for their whole career. Most people do not.

The plan fee stops when the money can leave

When you leave an employer you can usually roll the balance into an IRA, where you choose the funds and the fee. The Bureau of Labor Statistics reported a median of 4.1 years with the current employer for all wage and salary workers in January 2026.⁸

These figures count the years in the current job so far, which understates how long jobs last by the time they end. They still describe a workforce whose 401(k) money rarely sits in one plan for 35 years. Each contribution also has its own clock. A dollar put in during the last year before you leave pays the plan fee for one year, however long you worked there. Some plans also allow in-service rollovers to an IRA, often from age 59½. Your summary plan description says whether yours does.

Here is the break-even fee for one modeled saver: 24% tax bracket today and 22% in retirement, 15% on dividends and gains, 30 years until the money is spent, and a 6% return before fees. The taxable account holds a 0.05% index fund yielding 1.5%. The IRA after a rollover holds the same fund.

At a 1% plan fee and four years in the plan, $1,000 of pay becomes about $4,261 after tax in the traditional 401(k) and $3,656 in the taxable account. Leave the same money in the same plan for all 30 years and the 401(k) falls to $3,371, behind the taxable account. At a 4% or 8% return, the four-year break-even moves only to 4.10% or 5.50%, and the 30-year break-even to 0.60% or 0.79%.

Tax rates move the answer more. Here is the traditional 401(k) break-even for the same base case under other tax situations:

High earners get the most from the plan, because they avoid the most tax on dividends and gains and usually drop to a lower bracket in retirement. In the last row, a saver whose dividends and gains are taxed at 0%, and who expects the same income tax rate in retirement, gets no tax benefit from the 401(k). The plan wins only if it is as cheap as the outside fund.

When the taxable account or an IRA wins

• You expect to stay in an expensive plan for decades. With 30 years in the plan, a fee above 1% loses to the taxable account in every row of the table except the high earner’s. With 15 years left and no way out, the base case breaks even at 0.94%.
• Your dividends and gains are taxed at 0%. The federal 0% bracket for qualified dividends and long-term gains applies at lower taxable incomes.⁶ If you are there now and expect to be there in retirement, the plan’s tax benefit is small. A traditional 401(k) can still win if your retirement rate will be lower than today’s.
• You expect a higher tax rate in retirement. At 24% now and 32% later, the traditional 401(k) break-even at four years falls to 1.42%, while the Roth 401(k)’s stays at 4.29%. That is a reason to choose the Roth option inside the plan. Our Roth 401(k) vs. Roth IRA guide covers the choice.
• Cheaper tax-advantaged room is open. A Roth IRA (up to $7,500 in 2026⁹) and an HSA, if you have one, offer the same tax treatment at a fee you choose. In an expensive plan, fill them before unmatched 401(k) dollars. See the HSA investing guide.
• You will need the money before 59½. Early withdrawals usually add a 10% penalty, and the calculator does not model it. Our early-withdrawal guide works through when the penalty is worth paying.

The model also leaves out two things that favor the taxable account. You can harvest losses there, and heirs receive a stepped-up basis that erases the deferred gain. Two things favor the plan: ERISA creditor protection, and the fact that a traditional withdrawal is spread across several brackets instead of being taxed all at your top rate.

How to find your plan’s real cost

Department of Labor rule 29 CFR 2550.404a-5 requires plans in which participants choose their own investments to send two documents that together give the full cost.¹⁰

1. The annual investment comparison chart. For each fund it shows the total annual operating expense as a percentage and as dollars per $1,000 invested (paragraph (d)(1)(iv)). The figure is measured before fee waivers (paragraph (h)(5)), so a fund with a temporary waiver may cost slightly less than shown. Find the lowest-cost broad index fund, or the target-date fund you would hold. That expense ratio is the first part of your cost.
2. The plan-level fee explanation. The same notice must describe administrative fees for recordkeeping, legal and accounting work, and how they are split among participants: pro rata (a percentage of your balance) or per capita (a flat dollar amount per account) (paragraph (c)(2)(i)(A)).
3. The quarterly statement. At least once a quarter the plan must show the dollar amount of administrative fees actually taken from your account. If some administrative costs were paid out of fund expenses, for example through revenue sharing, 12b-1 fees or sub-transfer-agent fees, it must say so (paragraph (c)(2)(ii)).

Your all-in fee is the fund’s expense ratio plus the administrative fee as a share of your balance. Add the last four quarterly admin charges and divide by your balance. A flat fee weighs on small balances: $75 a year is 0.75% of a $10,000 account and about 0.04% of a $200,000 one. Leave out individual charges such as loan fees, which you control. If revenue sharing pays the recordkeeper, some plans credit the excess back to accounts. That credit shows up on the statement and lowers your cost.

The plan’s Form 5500 annual report is public, but it will not show expenses deducted from investment returns or the fees charged to your account, according to the Labor Department’s own fee booklet.¹¹ Use the disclosure and statements instead.

What to do inside an expensive plan

1. Hold the cheapest broad fund on the menu. Fund choice usually moves your cost more than any other lever. Our target-date fund vs. DIY guide covers how to build a reasonable mix from a plan’s index funds.
2. Take the match, then run the break-even. Enter your all-in fee and the years you expect to stay into the calculator below.
3. Roll the money out when you leave. An IRA is not the only option, and it can complicate a backdoor Roth. Our rollover guide compares leaving the money, moving it to the new employer’s plan and rolling it to an IRA.
4. Ask the plan sponsor for a cheaper menu. Plan fiduciaries have a continuing duty to monitor the investments and remove imprudent ones.¹⁶ The Supreme Court held in 2022 that offering a long menu does not excuse imprudent options on it.¹⁷

The research on how menus get expensive supports pushing on the sponsor more than relying on participants to choose well. After the 2012 disclosure rule, participants moved money away from high-fee funds, but the shift was modest and weaker in plans with many options.¹² Plans moved from indirect to direct fees, and total fees fell for smaller plans.¹³ Trustees were more likely to keep their own poorly performing funds on a menu, and participants did not offset the bias.¹⁴ Funds that pay revenue sharing were more likely to be added and less likely to be dropped. The plans that used them were more expensive overall, because the higher fund fees were not offset by lower direct fees.¹⁵

Run your own numbers

Set the all-in fee from your disclosure and the years until you expect the money to leave the plan. The defaults are the base case above. The chart shows how the break-even fee falls the longer the money stays.

Frequently asked questions

Should I stop contributing above the match because my 401(k) is expensive?

Usually not, if you expect to change jobs or roll the money out within several years. For the base case above, an all-in fee of 2.04% is still a break-even after ten years in the plan. Stopping makes sense when you expect to stay in a plan charging over about 1% for decades, or when your dividends and gains would be taxed at 0% in a taxable account.

Does a Roth 401(k) change the answer?

It lowers the break-even fee slightly when you expect a lower rate in retirement, because the Roth gives up the traditional account’s rate drop. It raises it when you expect a higher rate. In both cases the plan fee works the same way: it costs you only while the money is in the plan.

What is revenue sharing in a 401(k)?

Some funds pay part of their expense ratio to the plan’s recordkeeper, which covers administrative costs that would otherwise be billed to participants. The quarterly statement has to say when this happens. Research on the largest plans found that plans relying on revenue sharing paid more in total.¹⁵

Where do I find my 401(k)’s fees?

In the annual participant fee disclosure (often titled “Important Plan Information” or a 404(a)(5) notice) and on your quarterly statement. Both are usually in the recordkeeper’s website under documents or statements. The plan administrator must provide them on request.

Is a flat administrative fee a lot?

It depends on your balance. Divide the annual dollar amount by your balance to get a percentage, then add it to your fund’s expense ratio. A fee that is 0.75% of a new account becomes small as the balance grows.

What if my plan has no index funds?

Use the cheapest diversified fund on the menu and enter its expense ratio plus the admin fee. If that all-in figure is above the break-even for the years you expect to stay, fill an IRA or HSA first, take the match, and ask the sponsor to add an index option.

Key takeaways

• Take the full match first. It is an immediate return on every matched dollar, and the money can leave the plan when you do.
• Years in the plan matter more than the fee. For one modeled 24%-bracket saver, the break-even fee is 4.94% if the money leaves after four years and 0.72% if it stays 30.
• Ayres and Curtis’s 16% assumes a whole career in one plan. Their roughly 1% cutoff is the right test for a lifer, and too strict for someone who rolls the money out.
• Tax rates decide the edge cases. High earners should almost always use the plan. Savers in the 0% capital-gains bracket with flat lifetime tax rates gain little from it.
• Your cost is on two documents. The annual 404(a)(5) chart gives the fund’s expense ratio; the quarterly statement gives the admin fees charged to your account.

Related guides

• Should You Keep Your 401(k) Target-Date Fund or Build Your Own Mix? covers choosing funds within a plan.
• Old 401(k): Roll It Over or Leave It? covers what to do with the money when you leave.
• Roth 401(k) vs. Roth IRA covers which Roth account to fill first.
• Money Path gives the order for the match, IRAs, HSAs and taxable savings.
• VTSAX vs FSKAX: Should You Switch to the Cheaper Index Fund? covers when a fee gap is too small to act on.

Sources and method

1. James Choi, David Laibson and Brigitte Madrian, “$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans”, Review of Economics and Statistics 93(3), 2011. Seven companies; forgone match averaged 1.6% of pay.
2. Investment Company Institute and ISS Market Intelligence, The ICI/ISS MI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2023, 2026. Exhibits 4.1 and 4.2. Plan-weighted figures unless noted.
3. U.S. Government Accountability Office, 401(k) Plans: Increased Educational Outreach and Broader Oversight May Help Reduce Plan Fees, GAO-12-325, April 2012.
4. Ian Ayres and Quinn Curtis, “Beyond Diversification: The Pervasive Problem of Excessive Fees and ‘Dominated Funds’ in 401(k) Plans”, Yale Law Journal 124:1476, 2015. The 0.43-point and 16% figures are on pp. 1500–01; the model and the 1.03% threshold on pp. 1551–52.
5. Investment Company Institute, “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2025”, ICI Research Perspective 32(8), July 2026.
6. Internal Revenue Service, Topic No. 409, Capital Gains and Losses.
7. Internal Revenue Service, Net Investment Income Tax.
8. U.S. Bureau of Labor Statistics, Employee Tenure, Table 1, September 24, 2026 (January 2026 data).
9. Internal Revenue Service, 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500, IR-2025-111, November 13, 2025.
10. 29 CFR 2550.404a-5, Fiduciary requirements for disclosure in participant-directed individual account plans.
11. U.S. Department of Labor, Employee Benefits Security Administration, A Look at 401(k) Plan Fees, September 2019.
12. Mathias Kronlund, Veronika Pool, Clemens Sialm and Irina Stefanescu, “Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations”, Journal of Financial Economics 141(2), 2021.
13. Dominique Badoer, Cary Costello and Christopher James, “I Can See Clearly Now: The Impact of Disclosure Requirements on 401(k) Fees”, Journal of Financial Economics 136(2), 2020.
14. Veronika Pool, Clemens Sialm and Irina Stefanescu, “It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans”, Journal of Finance 71(4), 2016.
15. Veronika Pool, Clemens Sialm and Irina Stefanescu, “Mutual Fund Revenue Sharing in 401(k) Plans”, NBER Working Paper 30721; published in Management Science, 2026. Sample: the 1,000 largest plans, 2009–2013.
16. Tibble v. Edison International, 575 U.S. 523 (2015).
17. Hughes v. Northwestern University, 595 U.S. 170 (2022).

Method. Annual steps, one contribution of $1 of pretax pay. In the plan, growth is the return minus the plan fee for the years shown, then the return minus 0.05% in an IRA. The whole traditional balance is taxed at the retirement rate. In the taxable account, dividends at a 1.5% yield are taxed each year and reinvested, and the gain over basis is taxed at sale. The break-even fee is found by bisection. The code and its tests are in web/src/lib/high-fee-401k-math.ts; every figure above is pinned in the test file.

Editor’s note

Plan-cost, tenure and tax figures were checked against the sources above in November 2026. Fee data describe plans in aggregate; your plan’s disclosure is the authority for your account. This guide is educational and is not investment or tax advice.