A 401(k) plan is one of the most beneficial retirement plans available to small business owners like sole proprietors, partners in a limited liability company or S corporation, and even LLCs. It can help to save a significant amount of money for retirement and offers a variety of other tax benefits not found in traditional individual or Roth IRAs.
Cost
The cost of a Solo 401(k) plan is typically relatively low, especially compared with other retirement accounts such as SEP IRAs, SIMPLE IRAs, and traditional or Roth IRAs. The reason is that a Solo 401(k) is essentially an individual brokerage account in which you can invest your own money without the fees that come with SEP IRAs and other employer-sponsored retirement plans.
When choosing solo 401k plan providers, determine how much the initial setup fee will be and whether there are ongoing annual administrative fees. Additionally, consider whether your potential Solo 401(k) provider charges for executing trades or providing access to online tools like financial calculators and no-transaction-fee funds.
In addition to these costs, remember that a Solo 401(k) requires separate record-keeping for each participant (typically you and your spouse). This includes maintaining a bank account solely in the name of your 401(k) trust and tracking each “participant” ‘s investment performance.
Some providers will actively administer the plan for you, which can help you manage these fees and costs. This is worth considering, as it can significantly reduce the hassle of establishing and managing your own Solo 401(k) plan.
Investment Options
Since solo 401ks are designed to be an attractive option for self-employed individuals who want to manage their taxable income better, they tend to have fewer investment options than other account types. That makes a little extra effort to find the best provider a wise choice.
Most leading brokers offer a good selection of retirement-focused investments in their solo 401k accounts. The top solo 401k providers also offer a range of educational resources and analysis tools to help you create and maintain a well-diversified portfolio for retirement.
Other essential features of the best solo 401k plan providers include the ability to roll over into the account, support for loan rules, and flexibility on the asset side, such as using alternative assets. Some top providers offer access to real estate, lending products, and other assets.
Taxes
A solo 401k is a retirement account that self-employed workers, contractors, and freelancers can use to save for retirement. It offers higher contribution limits than a traditional IRA, SEP IRA, or SIMPLE IRA. It allows workers to invest in various assets, including stocks, ETFs, mutual funds, CDs, and bonds. It also can be used for profit-sharing contributions. Because solo 401ks have few employees and require less administration than a typical employer-based plan, they typically charge lower fees to administer.
However, you should pay attention to the fees associated with each brokerage and their various 401k offerings, as they can vary significantly. Some top providers offer low or no charges to open an account, while others have slightly different fee structures that can impact how much you save for retirement.
Additionally, look at how a provider handles rollovers. Most leading brokers will accept rollovers from a previous 401k, SEP IRA, or traditional IRA, which can help you maximize your retirement savings potential. In addition, some brokers provide access to features like financial calculators, robo-advisors, and other tools that can make it easier for you to manage your 401k investments. These perks can give one brokerage an edge over another.
Service
Advisors play a valuable role in assisting self-employed clients to choose the appropriate solo 401(k) plan that aligns with their specific requirements. They also help bridge the gap between the services offered by the plan provider and the client's responsibilities, such as setting up accounts, monitoring contributions, distributions, etc.
One of the most important aspects to consider when selecting a solo 401(k) plan provider is where your account funds will be held. You'll want to make sure that the broker you select will set up a bank or brokerage account in the name of your solo 401(k) trust and will let you fund the account with your own money. The best solo 401(k) plan providers will also allow you to take out loans from your plan assets, which not all solo 401(k) plans provide.
Conclusion
The best solo 401(k) plan providers offer various investment choices and competitive pricing. It allows you to open both traditional and Roth solo 401(k) accounts and offers thousands of funds that don't charge trading commissions, plus it doesn't have any monthly account fees. It offers a free options trader and an easy-to-use online portfolio management platform. In addition, it accepts rollovers from other retirement accounts and allows you to take 401(k) loans.
