Top 401 Providers For 2022
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Regardless of your businesss size, offering your employees a retirement savings plan is a crucial part of any HR operation. The key is to choose a 401 provider that is specially equipped to provide small businesses with quality retirement plans, investment advisory services and administrative support.
There are a few retirement plans available for self-employed and small businesses, including SEP-IRA, SIMPLE IRA and individual 401 plans, but traditional 401 plans are by far the most common option. Traditional 401 plans allow participants to make pre-tax contributions to an individual retirement account up to the limit set by the IRS. Employers can also choose to make contributions on behalf of their employees, match their employees contributions or both, also up to the IRS limit.
In this guide, well go over seven of the best 401 providers for small businesses and walk you through how to go about choosing the best 401 provider for you and your employees.
Goldman Sachs 401k Match
Goldman has an automatic enrollment feature for its 401 plan that allows employees to be enrolled into the plan immediately upon hire. Employees can contribute up to 50% of their eligible pay to the plan.
For an employee to qualify for the employerâs match, he/she must have completed 12 months of service. Goldman Sachs matches 100% of the employee’s 401 contributions each pay period up to 4% of the employeeâs base pay.
Matched contributions become fully vested immediately.
How Much Can I Contribute To My Solo 401k In 2020
The solo 401k contribution limit for 2021 is up to $58,000. If you are 50 or older, you can make an additional catch-up contribution of $6,500.
However, if you are side hustling on the side of your day job and making 401k contributions through your employer, the contribution limit applies across all plans, not individual ones. That means if you contribute $5,000 to your works 401k, thats $5,000 less you can contribute to your solo 401k.
There are also limits within the total $58,000 contribution limit, and it will help to remember that you are acting as both employee and employer with your solo 401k. Here are the additional limits:
- As the employee: Employees can contribute up to $19,500 in 2020 or 100% of compensation, whichever is less. If youre 50 or older, your catch-up contribution of $6,500 can be added here.
- As the employer: Acting as the employer, you can make an additional profit-sharing contribution of up to 25% of your compensation . The compensation limit here you can use to factor your contribution is $290,000 in 2022.
You fill both of those roles: employer and employee, which is why theres a much higher contribution limit.
Remember, your spouse can also contribute to your solo 401k if they derive an income from your business. This is up to the $19,500 employee limit . Then as the employer, you can make profit-sharing contributions for them.
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How Did We Pick The Best 401 Providers
When creating a new solo 401, our guidance evaluates providers based on certain characteristics that we know are crucial to investors and company owners . Traditional banks, HR firms, mutual fund firms, payroll providers, and third-party administrators were all included in the mix. We didnt rate them primarily on price since those with greater prices generally offer better customer service and retirement planning options.
Here are the factors we used to choose the top 401 provider after looking at a variety of options:
- Participation in the procedure
- Customer service by employers and employees
United Technologies 401k Match
United Technologies has an automatic employee enrollment feature in its 401 plan that starts at a contribution rate of 6%. This rate increases by 1% every year until it reaches 10%.
United Technologies matches 60% of an employeeâs first 6% of their eligible pay contributed to the 401, which is equivalent to 3.5% for employees who contribute at least 6% or more into the plan.
Apart from matching contributions, United Technologies also makes automatic contributions to the 401 plan based on the employeeâs age. Employees below 30 receive 3% in automatic contributions while those above 50 receive 5.5%.
Employees are 100% vested in the matching contributions after three years of employment.
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Best In Class 401 Plans
PLANSPONSOR is pleased to announce the sixth class of companies being given the Best in Class 401 Plan designation.
PLANSPONSOR is pleased to announce the sixth class of companies winning the Best in Class 401 Plan designation.
Plans were rated by way of a proprietary system that weighted usage/implementation of more than 30 criteria related to plan design, oversight/governance and participant outcomes. This being the sixth year, it was also the year that the first class of plansthose receiving the designation in 2015needed to requalify to keep their Best in Class status.
For more information, read the full story here.
Art by Mar Hernández
Why Choose Vanguard For Your Small Business
Selecting Vanguard for your retirement plan means you can expect high-quality, low-cost funds investment flexibility and exceptional serviceall from a partner trusted by businesses like yours to align with our clients’ interests.
Jump start your savings
As a small-business owner, planning for your retirement is entirely up to you. And if you employ others, you’ll be helping them get on the right track for retirement too.
Benefit from tax breaks
All retirement plans offer tax-deferred growth on earnings. As an employer, you also benefit from tax-deductible employer contributions.
Give your money a chance to grow
In addition to your plan contributions, the compounding of interest, dividends, and capital gains allows your account to generate earnings on top of earnings.
Attract and retain employees
Offering a retirement plan to your employees can keep you competitive in the job marketplace and help your business flourish.
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What About Defined Benefit Plans
Defined benefit planscommonly known as pension plansused to be fairly commonplace but are increasingly rare. According to a study by Willis Towers Watson, only 14% of Fortune 500 companies offered defined-benefit plans to new hires in 2019, a decrease from 59% of Fortune 500 companies in 1998.
With a defined benefit plan, employees receive a fixed, pre-set benefit when they retire. They have a predictable and reliable source of income in their retirement, and their benefits arent dependent on investment returns or market growth.
Defined benefit plans tend to be more expensive and complex for employers to operate, so many companies are opting to offer alternative retirement plans instead, such as 401s.
Best For Small Businesses: Forusall
ForUsAll is a retirement plan provider that is also a relative newcomer to the industry. But they came in with fresh ideas to undercut the typical small and midsize 401 provider with low-fee investment choices.
For employers, ForUsAll is a bargain. Businesses pay just $120 per month plus $6 per employee for plans. This friendly and low-cost provider is great for independent businesses that dont want the costs or hassles of the giant providers. And employees will be thrilled with the low fees and risk-sensitive investment options.
Suite of services makes plan administration easy
Limited scope of retirement products
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Best For Flexibility: American Funds
The great thing about a 401 plan from American Funds is that you can tailor it to fit almost any type of business. Start-ups, mergers, and well-established firms can create retirement plans using its services.
It also has several retirement plans available, including growth funds and growth-and-income funds .
Other funds available are equity-income funds and balanced funds that look to conserve capital and create current and long-term growth. You can also invest in stocks, bonds, and other fixed-income securities.
The firm also offers access to bond funds, which seek to create fixed income with capital growth as a secondary goal.
Administration And Customer Service
Ask about the administrative processes each provider has in place to set up your company plan, manage employee information, respond to questions, updates and plan changes. Providers that offer hands-on support can be especially beneficial to small businesses who have never managed employee 401s before. A strong customer support team also makes it easier for your employees to access information about their plan and make changes when necessary, allowing them to get full available benefits.
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How We Chose The Best Retirement Plans
We looked at more than a dozen of the best retirement plan providers nationwide and narrowed the list down to the top six providers based on a number of factors, including what types of retirement plans each offers. We also compared the management fees, investment experience, focus on retirement planning, and overall customer reviews.
Bank Of America 401k Match
New employees are automatically enrolled into the bankâs 401 plan at 3% of the eligible pay, which increases by 1% each year until it reaches 5%. Employees can change this rate at any time.
Bank of America matches employee contributions dollar-for-dollar up to 5% of the eligible pay. However, employees must complete one year of service to get this benefit. The firm also offers an additional 2 to 3% in additional annual company contribution depending on your years of service.
Employees are 100% vested in the matched contributions at all times.
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Charles Schwab: Best 401 Low
Charles Schwab offers both a full-service 401 plan customized to your company and the option to add investment advisory services to an existing 401. Charles Schwab has both a broker-dealer and banking subsidiary, so it can provide a full range of financial services. It also offers its own proprietary mutual funds and ETFs to plan participants, along with other investment options.
With zero dollar trading fees, Charles Schwab gets our nod for the best low-to-no fee provider. This is extremely attractive for 401 owners who want to trade stocks or bonds in their accounts.
How To Open A Solo 401k
You will need an Employer Identification Number to open your solo 401k. You will need to fill out a short account application and complete a plan adoption agreement, which defines the specific features of your plan.
Most brokerages have the paperwork available on their sites. Dont hesitate to contact the customer helpline if you have questions when youre filling everything out.
As soon as the paperwork is filled out, you can start making contributions. You can self-direct your investments or use the robo-advisor Blooom to manage your 401k if your provider doesnt have a robo-advisor feature.
Plans with a balance of $250,000 or more may require additional paperwork the IRS currently requires an annual report on Form 5500-SF if you reach that threshold.
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What To Consider When Choosing A Broker
If youre planning to roll over your 401 into an IRA, youll likely be most concerned with a broker that can do the following things best. Most brokers do offer an IRA, but some popular ones do not, but the brokers below all offer IRAs. We also considered the following factors when selecting the top places for your 401 rollover.
- Price: Trading commissions for stocks and ETFs have fallen to $0 at most online brokers, and thats great for investors. But there are other costs, too, perhaps most notably account fees, such as fees for transferring out of your account.
- No-transaction-fee mutual funds: The brokers in the list below offer thousands of mutual funds without a transaction fee. If youre rolling over your 401 and you like the mutual funds you have already, these brokers may allow you to buy and sell the same one without a fee.
- Investing strategy: While a 401 may limit your investing options to a pre-selected group of mutual funds, an IRA gives you the ability to invest in almost anything trading in the market. So we considered how each broker might fit an investors needs.
Vanguard Is The Best Mutual Fund 401 Provider
Vanguard is the worlds biggest mutual fund firm, with over $4.5 trillion in assets under management. Depending on the plans design, the business provides professionally managed mutual funds and ETFs that might be employed in a 401 plan. Vanguard is the best mutual fund provider for every 401 plan.
Vanguards function in the 401 industry is limited to that of a pure money manager. It doesnt handle plan administration, payroll, or banking, but its well-known as a money manager and a fantastic source of 401 investment possibilities. Vanguards funds cover a wide range of topicsdomestic vs. foreign, equities vs. bonds, aggressive vs. conservativeand provide excellent diversification at a cheap cost.
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Match Of The Top 41 Employers
Find out how 401 match works and the 401 match of top employers such as Amazon, Google, Microsoft, CVS, and others.
A 401 plan provides a convenient way to build a nest egg for retirement. An attractive feature of 401 plans is the companyâs 401 match, which helps employees grow their savings with some free money from the employer. If your employer offers a 401 match, you should find out if you are eligible to receive the match and start collecting the benefit.
401 match of top employers averages 6% of the employeeâs eligible pay. A 2020 study by Vanguard reported that 71% of companies matched $50 cents for every $1 an employee contributed up to 6% of the eligible compensation. Only 21% of these companies match employee contributions dollar for dollar.
Best Retirement Plans For Small Businesses & The Self
Self-employment is increasingly popular in the United States. According to the Pew Research Center, in 2019 16 million Americans were self-employed, and 29.4 million people worked for self-employed individuals, accounting for 30% of the nations workforce.
Being a small business owner or a solo entrepreneur means youre on your own when it comes to saving for retirement. But that doesnt mean you cant get at least some of the benefits available to people with employer-sponsored retirement plans.
Whether you employ several workers or are a solo freelancer, here are the best retirement plans for you.
|Who Is It Best For?||Eligibility|
Self-employed business owners with no employees .
Higher contribution limits than IRAs.
Contributions are tax-deductible as a business expense.
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Comparing The 5 Most Popular Solo 401k Providers
Now that we’ve covered the five major “free” solo 401k providers, let’s compare them in a chart side-by-side to see how their offerings compare to each other.
Sorry, the chart doesn’t display on mobile.
Comparing The Most Popular Solo 401k Providers
Some notes: Vanguard’s annual fees can be waived over $50,000 in assets. Also, all of these companies offer commission-free ETFs, so you could potentially invest for free within your Solo 401k. Vanguard also have a very odd pricing schedule. While they do offer their own products commission free, if you want to buy other stocks or ETFs, you’ll pay anywhere from $2-$7 depending on how much in assets you have.
Now you can see why the choice of solo 401k providers is so difficult. Each firm has strengths and weaknesses, and the selection depends really on what matters to you.
And if none of these really excite you, you can always create your own solo 401k with a third party provider.
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The 5 Most Popular 401 Contribution Features
Small business owners can have dramatically different goals for their 401 plan. While some want to maximize their personal contributions, others want to incentivize contributions from employees across the organization. The process of matching a small businesss goals to available 401 features is called plan design.
The five most popular contribution features that small businesses add to a 401 during the plan design process are:
Last year, we studied the plan designs of 3,975 small business 401 plans. Below is the adoption rate we found for each feature:
Well now walk you through each of these features and why you might want them.