Who Should Get A Solo 401
Solo 401 plans are best for business owners who want the most flexibility in how they save for retirement. Before signing up for a Solo 401, you may also want to consider a SEP IRA or SIMPLE IRA as well.
Solo 401 plans take more paperwork to get started but offer more flexibility in what you are able to contribute. For example, SEP plans only accept employer contributions, while a solo 401 takes contributions from either the employee or employer. SIMPLE IRAs are available to businesses with up to 100 employees. SEP IRAs dont have that limit.
Fidelity Solo 401k Brokerage Account From My Solo 401k Financial
A Fidelity Investments Solo 401k brokerage account with checkbook control from My Solo 401k Financial is ideal for those looking to still have the option to invest in equities while also gaining checkbook control over their retirement funds for investing in alternative investments such as real estate, notes, tax liens, and private shares in addition to processing a solo 401k participant loan.
What To Look For In A Solo 401k
Going through the process of shopping around for a solo 401k provider, I’ve learned a lot about what to look for. There are a lot of options and nuances that you should look for when shopping for a 401k. Many of the “free” providers offer simple generic plans, and if those don’t work for you, you can have a third party provider create a custom 401k plan for your business, which you can then take to a brokerage.
Whoa, that sounds confusing, and it can be. So let’s look at the major options that you need to consider when selecting a solo 401k provider.
- Does the 401k provider offer both Roth and Traditional contributions?
- Does the 401k provider offer after-tax contributions to do a mega backdoor Roth IRA.
- Does the 401k provider offer loans from the plan?
- What types of investment options are allowed in the plan?
- Does the provider allow rollovers into the plan and rollovers out of the plan?
- The costs to maintain the plan
- The costs to invest within the plan
Based on your wants and needs, there are a lot of things to compare when shopping for a solo 401k provider. Let’s compare some of the main firms that offer solo 401ks. We’re going to start with the 5 major firms that provide Prototype Plans. These are the “free” plans that the companies advertise.
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How Much Can You Put In A Self
The contribution limits for a self-directed IRA or self-directed Roth are the same as other IRAs. As of 2020, and through 2021, the annual contribution limit is $6,000 for those under 50. If you’re age 50 or above, you can contribute up to $7,000. The contribution limit applies across all IRA accounts.
The 6 Best Solo 401 Companies Of 2022
- Best for Account Features: E*TRADE
- Best for Mutual Funds: Vanguard
- Best for Real Estate: Rocket Dollar
Fidelitys self-employed 401 plan is our pick for best overall due to a combination of very low fees, a wide range of investment choices, and the companys emphasis on retirement savings.
No regular account fees and no commissions for stock or ETF trades
10,000+ no-transaction-fee mutual funds including four Fidelity funds with no fund expenses
Retirement resources including calculators, apps, and education resources to help you improve your retirement savings and investment strategy
Some active traders may want more powerful active trading tools
No electronic deposit for contributions
Fidelity self-employed 401 accounts are a great choice for fee-conscious investors, earning our top overall pick. The Fidelity solo 401 charges no opening or closing costs and no annual maintenance fees. Customers can invest in stocks, ETFs, and over 3,400 mutual funds with no trading commissions. That means many small business owners could use this account without ever paying any fees to Fidelity. If you need help to place orders, however, the $32.95 broker-assisted trade fee may be an impediment.
Read our full Fidelity review.
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Brokerage Account Windows In Your 401k Plan: Company Stock Issues
The SEC recently published a new interpretation discussing the requirements for registering an offering of employer stock on a Form S-8. Question 139.33 discusses whether an employer must file a Form S-8 registration statement for employer stock if the stock may be purchased by 401k plan participants through a brokerage account window.
What Are The Additional Risks Of An Sdba
The main risk is also the main benefit: The employee has more freedom and more investments to choose from, and fewer restrictions to trading. This can lead to emotional investing, not following prudent portfolio management techniques and not monitoring the investments closely. Someone could, for instance, put all of their 401 into a single stock or small basket of highly volatile stocks. They can attempt to time the market by making frequent trades and get whipsawed trying to do so. There is nothing there to protect them from themselves.
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Fiduciary Issues With 401 Brokerage Accounts
Plan sponsors that offer brokerage accounts should carefully analyze the potential liability of substantial losses sustained by novice investors. Many sponsors believe that they cannot be held responsible for what happens in these accounts, but many benefits experts and attorneys say otherwise.
All other investment options inside qualified plans are required by the Employee Retirement Income Security Act of 1974 to meet certain fiduciary characteristics, even if they are aggressive in nature. Nevertheless, a large percentage of the investment options that participants can purchase in a brokerage account will fail to meet this standard.
To manage a self-directed brokerage account successfully takes a great deal of knowledge and expertise.
Information On Brokerage Windows Requested By Dol
The DOL recently released a request for information concerning brokerage windows in 401k plans. The RFI includes 39 questions covering definitional issues, plan offerings, participation, selection, information available to fiduciaries, costs, disclosure, the role of advisors, fiduciary duties and reporting. This article begins by reviewing the brokerage window issue and then discusses the DOL’s RFI.
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Fidelity Separately Managed Accounts
This service is just what the name implies. Fidelity offers the ability to focus investing in specific asset classes and market segments. A total of six portfolios are offered for equity, fixed income, and diversified investing.
The individual portfolios include:
- Fidelity Tax Managed U.S. Equity Index Strategy
- Fidelity Equity Income Strategy
- Breckinridge Intermediate Municipal Strategy
- Fidelity Core Bond Strategy
- Fidelity Intermediate Municipal Strategy
- BlackRock Diversified Income Portfolio
Youll need a minimum investment of between $200,000 and $500,000, depending upon the specific portfolio. Portfolio pricing is shown below.
Differences From A Sep
If you work for yourself, you may already have opened a Simplified Employee Pension.
Here are a few of the key differences to be aware of:
- A SEP-IRA can have more than one participant.
- A SEP-IRA does not offer a catch-up contribution for those who are 50 or over.
- Employee deferral contributions are not allowed with a SEP-RA.
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Charles Schwab Solo 401k
Schwab is another discount brokerage that offers a prototype solo 401k plan for free. Since Schwab is continually working to improve their image in the low-cost brokerage space, I was interested to see what they offered.
I was disappointed to learn that Schwab only offers traditional 401k contributions – they do not have a Roth option on their plan. They also do not offer loans under their plan.
It appears that you can rollover a 401k into your Schwab solo 401k, but you cannot do an IRA rollover.
Schwab does offer a lot of investing options, including Vanguard mutual funds and commission free ETFs.
There are no fees to open the solo 401k, and there are no yearly maintenance fees. Inside the 401k, traditional Schwab pricing applies – $0 per stock trade, with $0 on Schwab funds and ETFs.
Learn more about Charles Schwab in our Charles Schwab Review.
How To Utilize And Capitalize On Self
Since the virtual disappearance of the defined benefit pension, many employers have offered employees 401 plans, which are defined contribution plans. Under 401s, employees can contribute a certain portion of their wages on a pretax basis and invest those funds. In many cases, the employer will match these funds.
The plan provider has chosen a menu of investments for the participant to choose from, but the latest development in this plan is the arrival of the self-directed brokerage 401 account as an investment option . This kind of account can offer exciting new opportunities to plan participants, but it also increases the risk to the investor, so it is crucial to understand the plan to enable the most success.
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Timing Of The Brokerage Account Setup
After submitting the Fidelity brokerage forms to Fidelity Investments, between 5-7 business days , you should receive an email from Fidelity Investments that their system has updated your email address. This indicates the application is in processing.
When you start receiving emails from Fidelity, you can check if the account has been fully setup without having to wait on the Fidelity Welcome Letter in the mail which includes your new account number. Please try to log in using one of the following methods:
- If you have an existing Fidelity login , you should see the new Non-Prototype account appear under your portfolio with an account number that starts with the letter Z.
- If you do not have an existing Fidelity login, you can try to register to Fidelity.com at the following link: You will need to create a username and password.
Advantages Of Establishing A Self
High Annual Contribution Limits
While an IRA only allows a $6,000 contribution limit , the Solo 401 annual contribution limit is $56,000 for 2019 with an additional $6,000 catch-up contribution for those over age 50. In addition, if your spouse generates compensation from the business, he or she can also make high contributions to the plan.
Under the 2019 Solo 401 contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $19,000. That amount can be made in pre-tax or after-tax . On the profit sharing side, the business can make a 25% profit sharing contribution up to a combined maximum, including the employee deferral, of $56,000.
For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $25,000. That amount can be made in pre-tax or after-tax . On the profit sharing side, the business can make a 25% profit sharing contribution up to a combined maximum, including the employee deferral, of $62,000.
A World of Investment Opportunities
Learn More:Beginners Guide to Alternative Investments
Checkbook Control and No Custodian Fees
Roth Type Contributions
Cost Effective Administration
Exemption from UDFI
Learn More:What is Unrelated Debt Financed Income
Work with the Leaders
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Best For Mutual Funds: Vanguard
Vanguard is well known for its own mutual funds and ETFs. If you prefer investing in Vanguard funds, a Vanguard Individual 401 plan gives you easy access with no trade costs, making the company our review’s best choice for mutual funds.
No fee to establish an account
Trade the Vanguard family of funds with no commissions or load fees
Roth contributions allowed
$20 annual fee for each Vanguard fund held in this type of account
401 loans are not supported
If youre looking to stick with a well-respected list of mutual funds from Vanguard, choose the Vanguard Individual 401. The account doesnt have an annual fee on its own for accounts with at least $10,000 in Vanguard funds. It charges a $20 annual fee below that balance plus a $20 annual fee for each Vanguard fund held in the account. Depending on how you invest, this fee can add up fast and could be a reason to consider buying those Vanguard funds elsewhere. You can also trade stocks and ETFs with no commission, in addition to options and fixed-income investments.
Vanguards founder, the late John Bogle, is credited as a pioneer in index investing, bringing the first index fund to market in 1976. Vanguard remains a leader in investment funds as the second-largest asset manager in the world with $6.2 trillion under management.
Read our full Vanguard review.
Should You Use Fidelitys Brokeragelink Option
If you are one of the 22 million investors with a retirement plan at Fidelity, you may have access to an option within your plan that could dramatically improve the success of your 401k. Fidelitys BrokerageLink® option is a self-directed brokerage account within the 401k or 403b plan. In this article, youll learn what the BrokerageLink® option is and when it may make sense to take advantage of it.
Most retirement plans provide a short list of investment choices across stock and bond categories along with one stop shopping in target date retirement funds. It is usually possible to craft a fairly well-diversified portfolio using the standard options offered by most plans. Interestingly, most investors dont undertake the effort. As of Q1 2019, 52% of individuals with a Fidelity 401k had all of their retirement savings in a target date fund.1
For investors who want more control over their asset allocation, BrokerageLink® may be the way to go. For purposes of our discussion today, well focus on Fidelitys offering, but many retirement plans administered by other institutions such as Charles Schwab, Alight, Ascensus, Vanguard, and Merrill Lynch offer similar brokerage window options.
What is BrokerageLink®?
Benefits of BrokerageLink®
The following are some additional considerations to make before opening a BrokerageLink® account:
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Are Self Directed Iras Safe
While a broader set of investment options may have appeal, investors should be mindful that investments in self-directed IRAs raise risks including fraudulent schemes, high fees, and volatile performance. An Individual Retirement Account provides investors with certain tax benefits for retirement savings.
How A 401 Self
Employers who offer brokerage accounts in their 401s must pick a specific firm to use, such as E*TRADE or Charles Schwab, and list this account along with the other investment choices in the plan. In some cases, participants may have a specified window of time each year to move money from their general omnibus account in the plan into the brokerage account.
Plan participants can then buy and sell stocks, bonds, ETFs, and mutual funds in the normal manner, albeit with no tax consequences. However, some types of higher-risk trades are prohibited, such as trading on margin and buying put or call options or futures contracts. Covered call writing is permissible unless the plans charter forbids it.
As of 2015, 40% of U.S. employers offered brokerage windows in their 401 account, according to a study by HR consulting firm Aon Hewitt. Some 19% of the plans Vanguard administers offer a brokerage window, according to the mutual fund companys How America Saves 2020 Report.
The Plan Sponsor Council of Americas 60th Annual Survey of Profit Sharing and 401 Plans, released in 2018,indicated that about a quarter of the plans offered by 590 plan sponsors featured a brokerage window. Some 403 plans now also offer this feature.
Vanguard reports that 19% of its 401 accounts offer a brokerage window, but only 1% of participants take advantage of it.
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Can I Convert A Roth Ira To A Self
Individuals may generally transfer Roth IRA or rollover eligible qualified retirement plan assets into a Self-Directed Roth IRA LLC structure. Individuals may not rollover Roth IRA funds into a qualified retirement plan, such as a Solo 401 Plan or a pre-tax IRA account, such as a Traditional IRA or SEP IRA.
What Is A Solo 401
A solo 401 is a tax-advantaged retirement account for self-employed business owners. A solo 401 is the same as a large company 401 but limited to just the business owner and his spouse. Like a 401 from an employer, you may be able to make either pre-tax or after-tax contributions and take out 401 account loans. Depending on the account provider you choose, your investment choices and costs may vary.
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Real Estate Iras Provide Diversification
Self-directed IRAs that focus on real estate investments are often referred to as “Real Estate IRAs.” With a Real Estate IRA, your retirement funds can invest in all kinds of real estate and real estate-related assets.
There are several ways to approach investing in real estate with your retirement funds but probably the most popular and easiest is to make an IRA investment as part of a partnership or LLC such as the investments available through American Landmark Properties. The IRA shares in the distributions and profits of the entity in accordance with its percentage of ownership.
A direct investment involves purchasing a physical property and collecting the income generated within your self-directed retirement account. It is the simplest and quickest way to use liquid assets in your retirement account. Your IRA pays cash for the investment property and holds title to the property. Rules about prohibited transactions apply to direct real estate investments. Please make sure you understand these rules to avoid potentially significant tax penalties.
In a Real Estate IRA, the property becomes an asset of your IRA. This means your IRA owns it. You do not own it, personally.
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