I’m a Fiduciary: Here Are the 7 Hidden Fees Eating Your 401(k) Alive

Most Americans believe their 401(k) is free because they never write a check for it. In reality, you are likely paying thousands of dollars a year for invisible services that you never explicitly agreed to buy.

The set it and forget it mentality is dangerous because it costs the average worker years of retirement freedom due to compounding fees.

Williams is writing this as a Fiduciary, which means he is legally required to act in your best interest and tell you the truth about costs that many brokers hide.

Below Williams will reveal the 7 specific fees draining your account and exactly where to find them in the fine print.

1. Expense Ratios

The expense ratio is the sticker price of the mutual fund you own and it pays the fund managers to select stocks for you.

In many 401(k) plans, employees are pushed into Active Funds where a human tries to beat the market, which often drives the cost over 1.00% annually.

It is significantly higher than passive Index Funds that run on autopilot and cost pennies compared to the dollars you pay for active management.

If you do not check this number, you are likely paying for a luxury service that underperforms the basic market averages over time.

• Active funds often charge over 1.00% while index funds can cost less than 0.10%
• A high expense ratio is the single biggest drag on your long-term compound interest
• Target Date Funds often have higher ratios than simple S&P 500 index funds
• You can find this percentage listed clearly next to every fund name in your portal

2. Administration and Recordkeeping Fees

Someone has to keep the lights on for the website you log into and the customer support line you call.

These fees pay for those administrative tasks, but the trap is that many plans charge this as a percentage of your assets rather than a flat fee.

This means an employee with one million dollars pays one hundred times more than a new employee for the exact same website access and quarterly statements.

It is a penalty for being a good saver because the cost increases every single year as your account balance grows.

• Look for a flat fee like $35 per year on your statement instead of a percentage
• Asset-based fees punish you for having a higher account balance
• This fee is often deducted silently from your returns rather than as a line item
• You are paying for the platform and customer service, not investment advice

3. 12b-1 Fees

It is widely considered the kickback fee of the investment world because it provides absolutely zero value to your retirement growth.

Mutual funds use 12b-1 fees to pay for advertising costs and to pay commissions to the brokers who sell the fund to your company.

You are essentially paying a fee to advertise a mutual fund that you already own, which makes no financial sense for you as the investor. It is comparable to tipping a waiter at a restaurant who never actually came to your table or served you food.

• These fees are used for marketing and broker commissions, not investment management
• They add no value to your portfolio performance or personal wealth
• You can check for this fee on Morningstar by looking at the Price tab
• If you see a 12b-1 fee listed, you should look for a cheaper fund option immediately

4. Revenue Sharing Arrangements

It is one of the most opaque fees on the list because it involves deals made behind closed doors. Fund companies often pay your employer’s recordkeeper to get their specific funds on the menu of options available to you.

It is a pay-to-play system where expensive funds kick back a portion of their profits to the platform provider in exchange for access to your money.

This conflict of interest is a major reason why many workplace plans offer terrible investment options with high costs instead of low-cost index funds.

• Fund companies pay this to get on your 401(k) menu
• It creates a conflict of interest that favors expensive funds over cheap ones
• This is often listed as Indirect Compensation in your official disclosure documents
• The fee is buried inside the expense ratio and shared with the recordkeeper

5. Wrap Fees

If you work for a small business, your plan might be run by an insurance company rather than a standard investment firm.

These plans often use Variable Annuities instead of regular mutual funds, which allows them to wrap an insurance fee around the investment. This can add a massive 1.00% or more on top of the fund’s normal cost, eating away your returns rapidly.

You should be very careful if you see terms like “Separate Account” or “Variable Annuity” because these are huge red flags for high costs.

• Common in plans managed by insurance companies for small businesses
• Often adds 1.00% or more on top of the standard fund expenses
• Look for words like Variable Annuity or Separate Account to identify this
• These fees pay for insurance features you likely do not need in a retirement plan

6. Sub-Transfer Agency Fees

These are fees paid to the recordkeeper for doing clerical work that the mutual fund company would normally handle. This includes processing your buy and sell orders and keeping track of who owns which shares within the plan.

The recordkeeper charges a fee for this work, usually ranging between 0.10% and 0.40%, which is skimmed off the top of your returns.

It is essentially an outsourcing fee passed directly to you, the employee, for administrative tasks that happen in the background.

• Pays for clerical work like processing trades and tracking shares
• Usually ranges from 0.10% to 0.40% of your total assets
• It is another layer of cost that reduces your net investment return
• This fee is often bundled into other costs and hard to spot individually

7. Managed Account Fees

Many providers now offer professional management or robo-advisor services that promise to rebalance your portfolio for you.

You might have clicked “Yes” on a pop-up window or been auto-enrolled into this service without realizing it costs extra money.

This service often adds an extra 0.50% to 0.75% on top of all the other fees we just listed, which is expensive for a simple rebalancing task.

For most people, a simple Target Date Fund does the exact same work for free, making this an unnecessary luxury tax on your savings.

• Check if you are paying for Advisory Services or a Managed Account
• Can add 0.50% to 0.75% annually on top of fund fees
• Often unnecessary because Target Date Funds do the same thing for less
• You can usually turn this off in your online portal settings to save money