Vanguard Increasing 403b Administrative Fee to $80 a Year

I’ve written previously about fees associated with tax-advantaged accounts like 401ks, 403bs, and 457bs. For those of you in Colorado PERA, you’re lucky enough to have access to PERA’s 401k (and, if your district has opted in, to PERA’s 457b). Unfortunately, many of the 403b vendors that districts also allow you to sign up with have exorbitantly high fees. (And, even when a district puts that out to bid, they still end up with something that is not as good as PERA’s 401k and 457b – see, for example, Denver Public Schools, Cherry Creek Public Schools, Aurora Public Schools, and Littleton Public Schools and Douglas County Public Schools).

But there are some good 403b vendors, and Vanguard is one of them. The one downside of Vanguard (besides many districts not offering it), is that they charge a $5/month ($60/year) administrative fee. It’s important to understand that they charge no percentage fee on your balance so, for folks with decent-sized balances in their 403b, the $60/year ends up being a small percentage of their balance and that makes it a better choice than most other 403bs. The problem arises, however, that when you have a small balance (particularly if you have a small balance for many years), that $60/year ends up being a much larger percentage. For example, if your balance is $10,000, then $60/year is 0.6%. That’s still much lower than many other 403bs, but it’s not great. By the time your balance gets to $100,000, that equates to 0.06%, which of course is fantastic. (Your employer may also choose to use a third-party administrator, and they may also charge an additional fee.)

People are starting to receive notices (I heard about this through the Teach and Retire Rich Podcast) that Vanguard will be raising that $60 to $80 beginning April 1, 2025. The expectation is that this will be passed on to all Vanguard 403b plans (although individual employers could choose to pick up some of that fee, but that rarely happens with school districts).

So does this mean Vanguard is now a bad choice? No, they are still a great choice, just not quite as great. And, for folks with small balances, they are still maybe not the best choice (at least not until your balance passes a certain threshold – you have to do the math). And for your individual retirement accounts (IRAs), Vanguard still charges a $0 administrative fee.

For folks in Colorado PERA, your best choice for an employer-based plan is PERA’s 401k and/or PERA’s 457b (if your employer has opted in to the 457). For your individual tax retirement accounts, Vanguard and/or Fidelity are still your best choices. If you have an existing 403b through your employer then you likely want to stop contributing any new money to them and contribute to PERA’s 401k or 457b instead. For the existing money that’s “stuck” in the 403b, you have the following options:

• Move it to another 403b offered by your employer (but this is only helpful if you have a good choice)
• If you are eligible, you can use that money to purchase service credit with PERA (this can be a fantastic way to get money out of an existing 403b)
• Or, once you leave that employer, you can roll it over into an IRA at Vanguard or Fidelity (and you should do this, but of course have to wait until you leave your employer).

So, while I’m not thrilled that they are raising it from $60 to $80, they have to deal with inflation just like everyone else, so this is a very reasonable increase. So if a Vanguard 403b is one of the options your employer offers, it’s still one to carefully consider and will likely be one of your best 403b choices.