Can expense ratios on investment options in a 401(k) plan contain part of the overall 401(k) plan fees?
There are several things being mixed up in the questions being asked. The expense ratio charged by the mutual fund is built into the NAV per share of the fund, and you do not see the charge explicitly  mentioned as a deduction  on your 401k statement (or in the statement received from the mutual fund in a non-401k situation). The expense ratio is listed in the fund's prospectus, and should also have been made available to you in the literature about the new 401k plan that your employer is setting up. Mutual fund fees (for things like having a small balance, or for that matter, sales charges if any of the funds in the 401k are load funds, God forbid) are different. Some load mutual funds waive  the sales charge load for 401k participants, while some may not. Actually, it all depends on how hard the employer negotiates with the 401k administration company who handles all the paperwork and the mutual fund company with which the 401k administration company negotiates.  (In the 1980s, Fidelity Magellan (3% sales load) was a hot fund, but my employer managed to get it as an option in our plan with no sales load: it helped that my employer was large and could twist arms more easily than a mom-and-pop outfit or Solo 401k plan could). A long long time ago in a galaxy far far away, my first ever IRA contribution of $2000 into a  no-load mutual fund resulted in a $25 annual maintenance fee, but the law allowed the payment of this fee separately from the $2000 if the IRA owner wished to do so. (If not, the $25 would reduce the IRA balance (and no, this did  not count as a premature distribution from the IRA). Plan expenses are what the 401k administration company charges the employer for running the plan (and these expenses are not necessarily peanuts; a 401k plan is not something that needs just a spreadsheet -- there is lots of other paperwork that the employee never gets to see). In some cases, the employer pays the entire expense as a cost of doing business; in other cases, part is paid by the employer and the rest is passed on to the employees.  As far as I know, there is no mechanism for the employee to pay these expenses outside the 401k plan (that is, these expenses are (visibly) deducted from the 401k plan balance). Finally, with regard to the question asked: how are plan fees divided among the investment options? I don't believe that anyone other than the 401k plan administrator or the employer can answer this. Even if the employer simply adopts one of the pre-packaged plans offered by a big 401k administrator (many brokerages and mutual fund companies offer these), the exact numbers depend on which pre-packaged plan has been chosen. (I do think the answers the OP has received are rubbish). I question the reliability of the information you received.  Of course, it's possible the former 401(k) provider happened to charge lower expense ratios on its index funds than other available funds and lower the new provider's fees.  There are many many many financial institutions and fees are not fixed between them.  I think the information you received is simply an assumptive justification for the difference in fees.
The management expense ratio (MER) is the management fee, plus all of the other costs required to run the fund, excluding any trading costs. Here's a pretty good explanation. The expense ratio is stated as an annual figure but is often broken down to be taken out periodically of the fund's assets. In traditional mutual funds, there will be a percent of assets in cash that can be nibbled to cover the expenses of running the fund and most deposits into the fund are done in cash. In an exchange-traded fund, new shares are often created through creation/redemption units which are baskets of securities that make things a bit different. In the case of an ETF, the dividends may be reduced by the expense ratio as the trading price follows the index usually. Expense ratios can vary as in some cases there may be initial waivers on new funds for a time period to allow them to build an asset base. There is also something to be said for economies of scale that allow a fund to have its expense ratio go down over time as it builds a larger asset base. These would be noted in the prospectus and annual reports of the fund to some degree. SPDR Annual Report on page 312 for the Russell 3000 ETF notes its expense ratio over the past 5 years being the following: 0.20% 0.20% 0.22% 0.20% 0.21% Thus, there is an example of some fluctuation if you want a real world example. The presence of the 401K option means that your ability to contribute to an IRA will be limited, it doesn't matter if you contribute to the 401K or not. Unless your company allows you to roll over 401K money into an IRA while you are still an employee, your money in the 401K will remain there. Many 401K programs offer not just stock mutual funds, but bond mutual funds, and international funds. Many also have target date funds. You will have to look at the paperwork for the funds to determine if any of them meet your definition of low expense. Because any money you have in those 401K funds is going to remain in the 401K, you still need to look at your options and make the best choice. Very few companies allow employees to invest in individual stocks, but some do. You can ask your employer to research other options for the 401K. The are contracting with a investment company to make the plan. They may be able to switch to a different package from the same company or may need to switch companies. How much it will cost them is unknown. You will have to understand when their current contract is up for renewal.  If you feel their current plan is poor, it may be making hiring new employees difficult, or ti may lead to some employees to leave in search of better options. It may also be a factor in the number of employees contributing and how much they contribute. Zero. Zero is reasonable. That's what Schwab offers with a low minimum to open the IRA.  The fact is, you'll have expenses for the investments, whether a commission on stock purchase or ongoing expense of a fund or ETF. But, in my opinion, .25% is criminal. An S&P fund or ETF will have a sub-.10% expense. To spend .25% before any other fees are added is just wrong. "Week after week, I make remarks regarding expenses within retirement accounts. A 401(k) with a 1% or greater fee is criminal, in my opinion.  Whole life insurance usually starts with fees north of 2%, and I've seen as high as 3.5% per year. Compare that to my own 401(k) with charges .02% for its S&P fund.  When pressed to say something nice about whole life insurance, I offer ""whole life has sent tens of thousands of children to college, the children of the people selling it."" A good friend would never suggest whole life, a great friend will physically restrain you from buying such a product." I like that you are hedging ONLY the Roth IRA - more than likely you will not touch that until retirement.  Looking at fees, I noticed Vanguard Target retirement funds are .17% - 0.19% expense ratios, versus 0.04 - 0.14% for their Small/Mid/Large cap stocks. It says expense ratio of 0.14%. What does it mean? Essentially it means that they will take 0.14% of your money, regardless of the performance. This measures how much money the fund spends out of its assets on the regular management expenses. How much taxes will I be subject to This depends on your personal situation, not much to do with the fund (though investment/rebalancing policies may affect the taxable distributions). If you hold it in your IRA - there will be no taxes at all. However, some funds do have measures of non-taxable distributions vs dividends vs. capital gains. Not all the funds do that, and these are very rough estimates anyway. What is considered to be a reasonable expense ratio? That depends greatly on the investment policy. For passive index funds, 0.05-0.5% is a reasonable range, while for actively managed funds it can go up as much as 2% and higher. You need to compare to other funds with similar investment policies to see where your fund stands. Annual-report expense ratios reflect the actual fees charged during a particular fiscal year.  Prospectus Expense Ratio (net) shows expenses the fund company anticipates will actually be borne by the fund's shareholders in the upcoming fiscal year less any expense waivers, offsets or reimbursements. Prospectus Gross Expense Ratio is the percentage of fund assets used to pay for operating expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. Fund expenses are reflected in the fund's NAV. Sales charges are not included in the expense ratio. All of these ratios are gathered from a fund's prospectus. When you look at managed funds the expense ratios are always high. They have the expense of analyzing the market, deciding where to invest, and then tracking the new investments. The lowest expenses are with the passive investments.  What you have noticed is exactly what you expect. Now if you want to invest in active funds that throw off dividends and capital gains, the 401K is the perfect place to do it, because that income will not be immediately taxable. If the money is in a Roth 401K it is even better because that income will never be taxed. Any ETF has expenses, including fees, and those are taken out of the assets of the fund as spelled out in the prospectus.  Typically a fund has dividend income from its holdings, and it deducts the expenses from the that income, and only the net dividend is passed through to the ETF holder.   In the case of QQQ, it certainly will have dividend income as it approximates a large stock index.  The prospectus shows that it will adjust daily the reported Net Asset Value (NAV) to reflect accrued expenses, and the cash to pay them will come from the dividend cash.  (If the dividend does not cover the expenses, the NAV will decline away from the modeled index.) Note that the NAV is not the ETF price found on the exchange, but is the underlying value.  The price tends to track the NAV fairly closely, both because investors don't want to overpay for an ETF or get less than it is worth, and also because large institutions may buy or redeem a large block of shares (to profit) when the price is out of line.  This will bring the price closer to that of the underlying asset (e.g. the NASDAQ 100 for QQQ) which is reflected by the NAV. Even ignoring the match (which makes it like a non-deductible IRA), the 401k plans that I know all have a range of choices of investment.  Can you find one that is part of the portfolio that you want?  For example, do you want to own some S&P500 index fund?  That must be an option.  If so, do the 401k and make your other investments react to it-reduce the proportion of S&P500 because of it(remember that the values in the 401k are pretax, so only count 60%-70% in asset allocation).  The tax deferral is huge over time.  For starters, you get to invest the 30-40% you would have paid as taxes now.  Yes, you will pay that in taxes on withdrawal, but any return you generate is (60%-70%) yours to keep.  The same happens for your returns. "Your employer could consider procuring benefits via a third party administrator, which provides benefits to and bargains collectively on behalf of multiple small companies.  I used to work for a small start-up that did exactly that to improve their benefits across the board, including the 401k.  The fees were still higher than buying a Vanguard index or ETF directly, but much better than the 1% you're talking about.   In the meantime, here's my non-professional advice from personal experience and hindsight: If you're in a low/medium tax bracket and your 401k sucks, you might be better off to pay the tax up front and invest in a taxable account for the flexibility (assuming you're disciplined enough that you don't need the 401k to protect you from yourself).  If you max out a crappy 401k today, you might miss a better opportunity to contribute to a 401k in the future.  Big expenses could pop up at exactly the same time you get better investment options.   Side note: if not enough employees participate in the 401k, the principals won't be able to take full advantage of it themselves.  I think it's called a ""nondiscrimination test"" to ensure that the plan benefits all employees, not just the owners and management.  So voting with your feet might be the best way to spark improvement with your employer.  Good luck!" Some index funds offer lower expense ratios to those who invest large amounts of money. For example, Vanguard offers Admiral Shares of many of its mutual funds (including several index funds) to individuals who invest more than $50K or $100K, and these Shares have lower expense ratios than the Investor shares in the fund. There are Institutional Shares designed for investments by pension plans, 401k plans of large companies etc which have even lower expenses than Admiral Shares. Individuals working for large companies sometimes get access to Institutional Shares through their 401k plans.  Thus, there is something to gained by investing in just one index fund (for a particular index) that offers lower expense ratios for large investments instead of diversifying into several index funds all tracking the same index. Of course, this advantage might be offset by failure to track the index closely, but this tracking should be monitored not on a daily basis but over much longer periods of time to test whether your favorite fund is perennially trailing the index by far more than its competitors with larger expense ratios. Remember that the Net Asset Value (NAV) published by each mutual fund after the markets close already take into account the expense ratio. There are hundreds of entities which offer mutual funds - too many to adequately address here. If you need to pick one, just go with Vanguard for the low low low fees. Yes, this is important. A typical expense ratio of 1% may not sound like much until you realize that the annualized real rate of return on the stock market - after inflation - is about 4%... so the fund eats a quarter of your earnings. (Vanguard's typical expense ratios are closer to 0.1-0.2%). If your company offers a tax-deferred retirement account such as a 401(k), you'll probably find it advantageous to use whatever funds that plan offers just to get the tax advantage, and roll over the account to a cheaper provider when you change employers. You can also buy mutual funds and exchange-traded funds (ETFs) through most brokerages. E*Trade has a nice mutual fund screener, with over 6700 mutual funds and 1180 ETFs. Charles Schwab has one you can browse without even having an account. "It seems I can make contributions as employee-elective, employer   match, or profit sharing; yet they all end up in the same 401k from my   money since I'm both the employer and employee in this situation. Correct. What does this mean for my allowed limits for each of the 3 types of   contributions? Are all 3 types deductible? ""Deductible""? Nothing is deductible. First you need to calculate your ""compensation"". According to the IRS, it is this: compensation is your “earned income,” which is defined as net earnings   from self-employment after deducting both: So assuming (numbers for example, not real numbers) your business netted $30, and $500 is the SE tax (half). You contributed $17.5 (max) for yourself. Your compensation is thus 30-17.5-0.5=12. Your business can contribute up to 25% of that on your behalf, i.e.: $4K. Total that you can contribute in such a scenario is $21.5K. Whatever is contributed to a regular 401k is deferred, i.e.: excluded from income for the current year and taxed when you withdraw it from 401k (not ""deducted"" - deferred)."