I will try to keep this as brief as possible. My 34 year old wife works for a small family owned business of less than 20 employees. Her employer offers a 401K with no employee match but the employer does a lump sum contribution each year regardless of employee contribution. This started in 2021 and has been between $3000 and $4000 once each year. My wife has maxed out her Roth IRA every year and is invested in a mix of VTSAX and VTIAX which have expense ratios of .04% and .09%. Starting in mid 2025 we were financially in a position for her to start contributing to her 401K in addition to what her employer was automatically contributing. She has been contributing $550 per check for a total of $9000 so far.
The issue we are trying to weigh is the high expense ratios of the funds available. The 401K provider is Capital Group (American Funds). The funds range from an expense ratio of 1.14% to 1.61%. Below is a list of all of the available funds and their expense ratios.
|RGLBX|1.53|
|:-|:-|
|RGWBX|1.46|
|RIVDX|1.61|
|RGNBX|1.4|
|RMFBX|1.35|
|RWIBX|1.51|
|RINBX|1.39|
|RLBBX|1.32|
|RGBBX|1.55|
|RBABX|1.43|
|RCBBX|1.4|
|RILBX|1.36|
|RMDOX|1.48|
|RPPBX|1.32|
|RBFBX|1.34|
|RABXX|1.39|
|RFRPX|1.14|
|RERPX|1.24|
|RDRPX|1.27|
|RAABX|1.5|
|RBOTX|1.48|
|RBNTX|1.48|
|RBMTX|1.47|
|RBITX|1.46|
|RBHTX|1.46|
|RBKTX|1.45|
|RBFTX|1.43|
|RBETX|1.42|
|RBDTX|1.4|
|RBCTX|1.39|
|RBJTX|1.39|
|RBATX|1.37|
Currently my wife is 100% invested in RGWBX with an expense ratio of 1.46%. The current value of the 401K is around $35,000 so nothing too crazy. The rational of investing in this 401K is that at the current contribution of $550 per paycheck she is able to invest $14,300 per year. If she stopped contributing to the 401K and contributed to a taxable brokerage she would be able to contribute in the neighborhood of $11,000 in post tax dollars at her current tax bracket. We figured that even with the high expense ratio the additional contributions each year should outweigh the high expense ratio. After doing some research we have learned how much a high expense ratio can eat away at gains over time. This in addition to the funds available underperforming low cost Vanguard index funds it has us second guessing whether it is worth it to keep investing in the 401K.
My wife will likely stay with this company for at least another 10 years but probably not over 20 years. The plan would be to move the 401K to a Rollover IRA and invest in lower fee funds once she eventually leaves the company. From what research I have done it appears that it would be worth it to continue contributing to the 401K if the plan would be moved over in 20 years or less. Was just hoping to get some further insight and thoughts, appreciate your time.