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Our 401k provider (Prudential) has expense ratio's higher than 1.5% on pretty much all their funds, and on the two equity funds that I'm investing in an expense ratio of 1.62% and 2.12%.

Also, all the funds seem to have a 5% deferred sales charge.

Too high on both counts, regardless of whether they're calling them administrative expenses or 12b-1 fees. Are you sure you're being charged all those fees? Some funds offered through 401K plans waive some of the charges that are normally assessed.

With no match and high costs, you should absolutely max out your IRA alternatives before considering the 401K. Because you're eligible for a 401K plan, you may be subject to income limits on the deductibility of Traditional IRA contributions. If you can't deduct, but fall within income guidelines to make Roth IRA contributions, do so.

After you've maxed out your IRA contributions, then you should consider whether long term buy and hold investing in individuals stocks or tax efficient mutual funds (index funds) might be a better option than bad 401K funds. You don't get the tax deferral, but you'd benefit from lower capital gains rates.

Also consider, if you leave your employer, you will be able to roll 401K funds to the IRA provider of your choice, so you might eventually be able to get your money out of that plan.
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