Finding a Good Self-Employed Solo 401k Administrator
As I’ve mentioned in my SEP IRA versus Solo 401(k) comparison, the problem with the additional paperwork involved with a 401(k) is that you have to find an administrator that is willing to do it for you at minimal cost. Compare that with the SEP-IRA, you can usually walk up to many brokers, open up an account, and start trading anything with no annual fees and just commissions.
For example, I opened up my SEP-IRA last year with Vanguard, but I can’t open up a Self-Employed 401(k) with them directly as they won’t be my administrator. The only option I found was to go through a third-party administrator like 401kBrokers, which charges an annual maintenance fee of 0.25% of the account balance. I think the fees are pretty fair considering there is no setup fee or other annual fees, but I still don’t want to pay them if I don’t have to.
The most attractive administrators I’ve found with low fees and a good selection of mutual funds are Fidelity and T. Rowe Price. Both of them will set you up for free and have minimal fees except for the usual fund expenses. (T. Rowe Price does charge an annual $10 administrative fee is charged for each mutual fund account with a balance of less than $5,000.) I am leaning towards Fidelity as they have index funds with 0.10% expense ratios, but they also have $10,000 opening minimums. I have dealt with them for my corporate 401k in the past and their customer service was excellent.
You can find a huge list of Solo 401k brokers here [pdf]. Most of them charge annual fees, which is understandable since they don’t own the funds they need a way to cover their costs.
You can set up a new Solo Roth 401k through 401kBrokers as well, but not through any of the big guns like Fidelity or T. Rowe Price. I’m sure it’s just a matter of time.
Find more in Entrepreneurial, Retirement | 8/17/06, 8:45pm | Trackback
August 18th, 2006 at 5:16 am
I opened up a Solo 401(k) plan with Fidelity last year. So far they have been excellent… I was pleasantly surprised with their level of knowledge, they gave actual advice from a tax standpoint, not just the standard ‘consult your tax advisor’.
My corporate structure is S-Corp… total income is around $300k, $60k in salary of which I defer $15k in salary and my company contributes 100%. So I contributed $30k.
I went to a Fidelity office to set it up, the paperwork was very simple and the folks at the branch knew exactly what I was talking about (which isn’t always that case for stuff like this).
I am wondering what happens when the plan assets reach over $100k. My understanding is that there is alot more paperwork at that point. I won’t reach it this year unless I roll in some old 401(k)’s from other employers into it.
August 18th, 2006 at 5:39 am
FYI. Looks like your RSS feed is broken.
August 18th, 2006 at 5:40 am
Hmmm, this just doesn’t make any sense to me.
I’ve had two different individual 401k accounts and have NEVER had to pay brokerage fees.
My accounts were with Schwab and with TD Waterhouse.
In all cases there was no annual paperwork and no extra account or brokerage fee.
Filling out the paperwork to open the account was a bit more time consuming - but not that much more time consuming - everything was on-line and I didn’t need an accountant to do the work.
Individual / Solo 401ks were designed to be easy to administer (my brokers do all the work for no extra charge). In the past I had heard of some administrators who charge $100 per year, but that’s not too bad compared to $35 dollar administration fees some corporate 401k providers charge their account holders annually.
Try schwab and TD waterhouse. I liked them both and they both download into Quicken.
Have a wonderful day,
makingourway
PS I have several posts comparing SEPs to solo 401ks on my blog. As I own both, I’ve become a total fan of solo 401ks due to the ease with which one can contribute money.
Here’s one discussion comparing the two.
August 18th, 2006 at 8:38 am
Hello there,
I am sorry to ask you a wrong question in a wrong place, i am new to to these PF blogs and been learning a lot since 1 week. On your networth statement what is “brokerage” what all will come under this category?
i don’t know whether i should put this in my networth or not.
sorry again for asking wrong question…
thanks in advance.
August 18th, 2006 at 12:35 pm
Some of the bigger brokerages offer Solo 401ks, but most brokerages don’t offer them directly. I looked at Scottrade, Firstrade, ETrade, MB Trading, ThinkOrSwim, TradeKing, Interactive Brokers, and more. To get access, you need another person that acts as your administrator. They are the ones that charge the fees.
I wasn’t aware that TD Ameritrade did Solo 401ks - I just asked them online and the said they didn’t do any 401ks. Maybe that was only with TD Waterhouse per-merger?
Charles Schwab has been getting better, but I’ve never really thought of them as low cost. They seem to be the most expensive of all “discount” brokers. Higher stock commisssions, limited no-transaction-fee mutual funds, lack of low-cost index funds.
Chris - brokerage just means taxable investment account held at a brokerage like TD Ameritrade.
August 18th, 2006 at 12:40 pm
thanks a bunch jonathan!!!
August 18th, 2006 at 1:04 pm
RSS feed should be fixed. No idea what happened…
October 24th, 2006 at 1:30 pm
December 22nd, 2006 at 7:51 am
[...] Of course, once you’ve saved it you still have to avoid the tax man. We maxed out our Roth IRAs and opened up and funded a Self-Employed 401k account. I’m very happy about that. [...]
March 1st, 2007 at 3:27 am
T. Rowe Price started offering the Roth Solo 401k as of mid 2006.
April 25th, 2007 at 4:45 pm
you can get a 401k solo thru putnam
May 9th, 2007 at 4:27 pm
Hi, all,
You can set up a solo 401K for free - no mins, no fees at Charles Schwab now (posting 5-9-2007). You do need to have an EIN for your business - even if you are a sole prop - but you can get that online easily. I say: take advantage of socking away a lot more in a solo 401K than you can in a SEP-IRA! If over 50, it’s $20K!
Barbara
July 19th, 2007 at 5:23 am
I have a fulltime job (with deferred comp) and a side business that only grosses approx 20k annually. Is a 401k with the brokers listed above even worth it for me? If not, any suggestions?
Thanks.
Paul
August 10th, 2007 at 7:25 am
I have a fulltime job ( maxed out my 401k) and a side business that grosses approx 120K this year but in future I am expecting it to gross about 20k annually.
Can somebody suggest me the best ways to save on taxes and create a SEP 401k?
Thanks,
Jimmy
September 10th, 2007 at 10:37 pm
Be aware that Schwab Individual 401k does not have loans available, so if you find yourself in emergency need of funds, you would need to get them elsewhere (or get hit with penalties for early withdrawal if you touched that solo 401k) and potentially be paying much higher interest than prime.
Most solo 401k providers do allow loans, so worth taking the time to find one that meets all your potential needs.
Any providers out there with no setup or annual maintenance fees, no minimum initial investment, AND who allow loans? Or at the very least, low setup and annual fees with no minimum on investment?
thanks.
September 19th, 2007 at 1:17 pm
We draft all the documents for Vanguard if you want a solo or individual(k). We only charge a flat fee one time fee and nothing else. We are part of Vanguards recommended service providers.
Thanks
September 25th, 2007 at 1:15 pm
thanks Ron. Who are “we” please?
October 11th, 2007 at 9:15 pm
Alison, you can click on Ron’s name
October 17th, 2007 at 6:09 am
What do I (1099 sched c) put down the SS4 form to apply for a federal ID number for a solo 401k ?
Line 1 type of entity - sole proprietor ?
Line 10 Reason for applying:
Creating a pension plan ? or Other or what ?
October 25th, 2007 at 12:18 pm
I am in the process of opening a “no-fee” Etrade Individual 401k. I am going to name myself as administrator/trustee of the account. Between my accountant and I think we can handle the Form 5500 that we’ll need to file annually.
I only PLAN on using the account as a run-of-the-mill retirement fund (publicly traded funds, etc.). However - if I need a loan I believe I could move administration to some person or group with more expertise (E*trade could remain the custodian) and pay the necessary fees at that time.
To summarize, I think it is possible to avoid adminstrative fees if you keep your retirement investing simple. If anyone sees a problem with my logic, please let me know! Thanks.
November 9th, 2007 at 9:13 pm
Does anyone know if you can do monthly automated deposits for dollar cost averaging for any of the larger plans mentioned above? As I am looking at the Fidelity plan it appears I have to write a check and mail it each time. That sounds like a pain.
December 9th, 2007 at 8:53 pm
The regulations have changed regarding the filing of a tax return. In 2008, you file a Form 5500EZ if your assets are over $250,000. This is an increase over the $100,000.
February 11th, 2008 at 10:53 am
Lawrence Groves,
Gotta tell it like I see it. Your posts are shady. You post as though you are a customer and have no relationship. However, on the solo-k site, it shows that Lawrence Groves is the man there.
If you are going to pump your business, pump it like Ron above, he discloses that he is promoting his business.
February 15th, 2008 at 9:50 pm
Lawrence Groves,
Sorry to say Wood has hit the nail on the head. I was excited to see a reference to something called solo-k.com, but when I saw that your tone of happy customer couldn’t be squared with role of site owner…the jig was up.
You may offer a great service, but I can’t send you huge sums of money, when you pretend to have forgotten what your day job is.
In future, just speak in simple sentences. “I offer a service. You may find it useful. Here are the benefits…” Leave the acting to Hollywood stars.
February 15th, 2008 at 9:58 pm
Thanks for the heads up guys. I try to keep self-promotional comments off the blog. Although I must say, he didn’t even have to put down Lawrence Groves as his name, so that’s kind of weird.
Many of these smaller solo 401k sites are one-man operations. Depending on your view, that could be good or bad. But I like having Fidelity because I feel they are are more tested.
February 24th, 2008 at 12:32 pm
Woody, Keepitstraight and Jonathan:
My name was on the comments exactly because I was not trying to hide anything. I do have a solo 401k plan with the Solo-k Retirement Group. Like the President of Hair Club for Men, I am a customer too
With over 20 years of experience in 401k plan administration, my comments on this blog are intended to be educational not promotional. If I cite the website, it is to provide a source for information on administration that appears to be needed.
f you reviewed the posts I made, you would see that they provide information valuable to Solo 401k sponsors.
March 12th, 2008 at 6:31 pm
i chose td waterhouse for my self employed 401k due to them have a loan provision and no fees to open and maintain the account.
March 14th, 2008 at 1:24 pm
My small business has an Oppenheimer single k with Roth component through my financial advisor, but I’m wondering if at some point in the future I can roll it over to another fund family — say, T. Rowe Price — and have them administer it to save on fees. Are you allowed to do this — to move single Ks from one fund family to another? Just want to know if I’m trapped forever at Oppenheimer.
Thanks!
Stephen
March 15th, 2008 at 7:52 pm
Stephen:
Changing your investments is not considered a rollover.
You should be able to change your investments according to your wishes. With a self directed Solo k you should be able to open an account at T.Rowe Price. You might ask them if they will let you keep the Oppenheimer funds should you want to keep them.
According to Warren Buffet Rule #1: Do Not Lose Money
Rule # 2: Do not forget Rule #1
March 16th, 2008 at 8:41 am
Just to clarify something on moving your 401(k) from one vendor to another. You certainly can move from Oppenheimer to T. Rowe, but you must be careful on how you do this. The whole idea for these large institutions to attract your 401(k) business is to provide you with a “free” prototype Plan Document and Trust. By doing this, you are obligated to invest “all” your money with that institution. The Plan Trust in most cases will not allow you to invest in other institutions mutual funds (unless your plan is with a discount brokerage outfit). So if you want your money with T.Rowe as an example, you literally have to fill out a new prototype document (keeping the provisions identical) and then move the entire assets over to the new vendor. In other words you can’t sponsor more then one Plan. The only way to avoid having to open up a new plan and transfer the old is to have your own custom Plan and Trust which allows you to invest your money in any mutual fund company. This way your not using their plan document. Hope that doesn’t confuse everyone.
March 25th, 2008 at 8:41 am
Hello.. I am planning to roll over a 401k to a solo (self employed)type. Have pretty much decided to use Lawrence Groves as a third party administrator, since his plan is pretty simple and allows me to keep the mutual funds I have and get loans as needed etc. Does anyone have any experience with Lawrence and could you share that with me. I am a bit concerned since his company has only been in business for a short time. Do these guys have to be insured or bonded or what exactly is the deal. My account has less than $200k, but it is all I have and I don’t want to turn it over if there is even a remote chance that it is not a good thing. My email is mesaeg@prodigy.net Thanks.
April 1st, 2008 at 1:03 pm
I am in the same boat as Ed. I have 401K, IRA, Roth etc with all the big ones, Vanguard, Fidelity and E-trade. I wish to move only $100K into a solo 401k soon since I will be purchasing a house and wish to make use of the $50k loan provision. This is not complicated but I wish the larger companies would offer this, none of them do. Are my only options to use a broker or smaller companies like investsafe, (fees range from .25% to 1% annual)? I don’t have a bias against small companies, only I wish I could determine their reputation beforehand.
Thanks,
April 18th, 2008 at 2:02 am
I’m trying to adopt an self-directed (simple) 401k and hit on Etrade - only due to their permitting self-trading shares/options on 6 international exchanges.
I’m not much of a fan of mutual funds as I cannot see paying someone to manage my investments for a fee when they get paid commission per trade - not per profit. Like the Duke Brothers said in ‘Trading Places’: “Whether the customer makes money or loses it - Duke and Duke get paid on every trade”.
My only question is - if I elect to start my simple 401k through Etrade - must I select someone else (other than myself) to be the administrator and custodian? From what I read on their site it’s vague.
As the Administrator I could ‘administer’ my trades - correct?
As the Custodian - Etrade would hold custody of the assets IN my 401k - correct?
If either of these assumptions are incorrect - please say so and offer guidance.
Thanks; Larry
May 3rd, 2008 at 8:59 am
Ed:
I have had a plan with the Solo-k Retirement Group for a couple of years. They have answered all of the questions I had, kept my plan up-to-date with the IRS, processed my loans and provided the necessary IRS reports for my brokerage, real estate, and gold investments.
I prefer to make my own investments and the Solo-k Retirement Group flexibility works well for my needs
June 29th, 2008 at 7:26 pm
I was troubled by a couple people saying they wanted to take loans from their 401k/solo 401k plans. This is a terrible idea. For one thing your money misses out on growth while its outside your account and even more importantly your volunteering to pay double taxation on the amount you take out as a loan. You have to pay that loan back eventually, and you will with AFTER tax money, that is money that has already had employment and income taxes withheld from it before you can pay back to your 401k. When you go to cash out your 401k upon retirement you’ll pay taxes on all that money again.
June 30th, 2008 at 4:22 am
I truly recognize what Financeguy says - that borrowing from a 401k is probably a dumb idea for most, however in my situation it is either that or try to get a commercial loan 8%+ to expand my business. The 50K is a small percentage (<5%) of my tax deferred holdings, so to me it is not so bad to use the 50K at this stage of life when it can really make or break the business.
I did eventually find that E*trade offers the loan provision in their solo 401K option and yes once you open the account, you trade ETFs, mutual funds, bonds yourself just like any brokerage account.
You are the administrator, E*trade is the custodian. I have been happy with E*trade as customer with my other SEP-IRA, IRA and regular accounts.
This may be off topic, but I remember reading in WSJ last year about a company that will set up an equity plan for your business using your own tax-deferred accounts - thereby allowing you to use your own tax deferred assets in your business. Anyone have any 1st or 2nd hand knowledge of this?
June 30th, 2008 at 2:29 pm
Hey Dave
Finance guy is a little offbase as far as I’m concerned. It depends on your age and your circumstances, among other things. Just like anything in life there is no set answer for a particular situation. You need to know the details. Meantime, I had The Solo 401K group set up a plan for my small profitable company. I am extremely happy with them so far. They answered all my questions. Prepared the documents ( including the loan documents that I may require) and got an IRS approval and TAX ID # Then I established a brokerage account at Charles Shwab ( money market fund) This allows me to move money in and then decide where I want to invest. I rolled over an amount from another 401k and the whole process was very easy. The Solo Group is the third party administrator and only keeps and forwards records. My wife and I are the trustees. All of this for $292 .00 per year. Pretty hard to beat I think.
August 22nd, 2008 at 1:18 pm
I have a small business (bookkeeping) and opened a solo 401k a couple of years ago through 401Kbrokers.com. TD Ameritrade is the custodian. Because of the TPAs increase for small accounts, I want to self-administrate. Is there any reason I can’t/shouldn’t do this? Surely I can figure out the 5500EZ. What do you think?
December 30th, 2008 at 2:25 pm
I have a one person s-corp, and I have a solo 401k with TD Ameritrade, originally opened when it was still TD Waterhouse. I have been doing the EZ5500 by myself the last couple of years, it is really simple if you dont have loans or fancy investments like real-estate within the solo 401K
January 7th, 2009 at 8:15 pm
Izk, thanks for the reply. Nothing fancy here. The atty who wrote my original document for the 401k says I may no longer use it — I have to write my own. Any idea how to go about that? It was a huge document, but with no employees, I don’t see why it has to be that complex. Any suggestions?
Thanks.
January 8th, 2009 at 7:43 am
Warbler,
I have mentioned before that many investment houses will attract your business by giving you a free prototype. You can contact TD Ameritrade and ask if they have a Solo 401(k) Prototype that you can sign on with. Otherwise as I have suggested independent adminisatrative firms can draft a prototype for a nominal fee. You certainly can self-administer your own plan, however there can be some complexities when your dealing with Self-Employment income and how much “Net Earned” income you can use for contributions to the plan. The 5500-EZ is not due until the assets in the plan hit $250,000.
Hope that helps
August 26th, 2009 at 8:53 am
I/we have an s-corp. with me and my wife. We are both officers of the s-corp w/o any other employees. I would like a solo 401(k).
does the ERISA protections work here, I have heard both yes and no!!
September 17th, 2009 at 3:27 pm
I just got off the phone with a TD Ameritrade customer service rep who assured me that they do have solo 401k plans. You can’t open them online, so she is sending me all the paperwork (forms, plan description, etc.) via snail mail. I should have it next week.
September 18th, 2009 at 4:46 am
A follow up. I managed to open up a Etrade solo 401k for my LLC (I am the only employee). There are no fees to do this or annually and the paper work was routine. The thing about Etrade that’s really nice is that I can write myself a loan, $50K max which I needed to do to buy a house. I had rolled my former Keogh into this new solo 401k to fund the loan earlier last year. When I researched this last year, many of the big solo 401k custodians will not provide the loan feature, I don’t know why they dont but Etrade works for me. I also have some other accounts there and was a little worried last year about their long term viability. Caveat Emptor!