Are Managed 401(k) Accounts Worth the Extra Cost?

Financial adviser with couple — (Image credit: Getty Images)

Professionally managed accounts within 401(k)s are having a moment. As of the end of 2024, nearly all participants in Vanguard plans had access to target-date funds, and almost 80% had access to accounts that financial advisers managed. But that advice comes at a cost.

Retirement savers pay annual fees of between 0.4% and 0.6% of the account balance, on average, for a managed account. That’s on top of the underlying expenses of the fund.

Let's say you have $250,000 in your 401(k). It will cost you between $1,000 and $1,500 extra to get the help of a financial adviser.

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But whether or not you should pay for that extra hand-holding depends on your temperament, investment acumen and financial needs.

After all, while research shows people with a managed account within a 401(k) tend to save more, no data indicates these funds outperform other self-directed funds offered within 401(k) plans.

401(k) managed accounts: what do they give you?

401(k) managed accounts can help you decide how much money you should contribute to your retirement savings account. They also provide other services, including:

Customized asset allocation: Many pre-retirees choose to invest in target-date funds. But such funds lack the personalization of managed accounts.

A target-date fund is a one-size-fits-all approach to retirement savings that creates a portfolio based on your age and time horizon. It's a mutual fund or ETF that adjusts its asset allocation from a growth-oriented (such as stocks) approach to a more conservative (or bond-focused) makeup as you get closer to your retirement date.

With a managed account, you get a customized asset allocation that accounts for your personal goals, risk tolerance, the different types of income you may have in retirement and when you plan to retire.

"It's a more personalized approach to investing than what’s available with a target-date fund," says Wei-Yin Hu, head of financial research and strategy at Edelman Financial Engines. “It takes into account your risk preference and tailors the portfolio to the individual’s circumstances.”

Access to a professional financial adviser: If this year has taught us anything, it's that markets can change on a dime. With tariffs on and off again, global unrest growing and subsiding, the stock markets have been whipsawing between up and down days. A passive target-date fund can’t react to that, but a managed account run by a professional financial adviser can.

That’s not to say it will outperform, but the account is being professionally managed, which may give you more peace of mind in tumultuous times.

“We’re solving the behavioral challenge of staying invested," says Wei. “Our staff of licensed advisers takes thousands of phone calls on peak days when the market is doing something wild and helps them understand what's happening."

Take COVID as an example. In roughly the first month of the pandemic, the market dropped about 34%, causing investors to panic. Yet, during that time, only 0.3% of people in 401(k) managed accounts made investment changes, said David Montgomery, Managing Director of Retirement Plan Services at Concurrent Investment Advisors. Meanwhile, about 2.3% of people in target-date funds made changes, he says.

“Investors are less likely to make knee-jerk reactions if they know they have someone they can rely on,” says Montgomery.

Extra bells and whistles: With a managed account, a financial adviser will make sure your asset allocation matches your unique situation and adjust it during tumultuous times. The adviser can also help you determine strategies to save more or less in your 401(k), when to start drawing down in retirement and even when it makes sense to do a Roth conversion, says Montgomery.

While the financial advisers aren’t supposed to give you tax and estate planning advice, they will try to help or point you in the right direction.

“There’s no question that we won’t touch. We realize people need a lot of help, but that doesn’t mean we will give detailed tax advice,” says Wei. “We will address their needs with the abilities we have.”

401(k) managed accounts aren’t for everyone

There are retirement savers who like the idea of having help with their 401(k) plans and don’t mind paying for it, but a managed account isn’t for everyone.

Target-date funds do a good job of keeping retirement savers invested and weathering downturns and could be enough, especially if you don’t have a lot of assets or your situation isn’t too complex. It’s why target-date funds reached $4 trillion in assets in 2024.

Plus, during recent market turmoil, target-date funds proved their mettle. Between February 19, the market’s 2025 peak, and April 8, the S&P 500 lost 18.6%, while target-date funds covered by Morningstar lost 7.6%.

Another consideration: If you are savvy and knowledgeable about investing, you could choose your asset allocation yourself and avoid paying the extra fees associated with a managed account. Ultimately, it comes down to your comfort level and if your plan sponsor offers the extra hand-holding.

“If we lived in a perfect world where people were highly educated about financial advice, we wouldn’t need it, but that is far from the world we live in,” says Wei. “The reality is people are left on their own, and they need more than investment products.”

Donna Fuscaldo is the retirement writer at Kiplinger.com. A writer and editor focused on retirement savings, planning, travel and lifestyle, Donna brings over two decades of experience working with publications including AARP, The Wall Street Journal, Forbes, Investopedia and HerMoney.