Solo 401k Retirement Account for Self-Employed Income

I previously blogged about the different self-employed retirement options. In that blog I decided a solo or individual 401k was the best option for my self-employed income. To sum it up, a solo 401k allows me to put away all of my self-employed income with the exception of the deduction for 1/2 of the self-employment tax. I’ve done some research on the different administrators for a self-employed 401k account. A list of available solo 401k options can be found at the 401k help center (pdf). I’ve selected a few different options and described them in detail below.

Fidelity offers a great website that clearly explains the tax advantages of a solo 401k, the higher contribution limits and the set-up and contribution deadlines. At Fidelity you are designated as the plan administrator. As plan administrator you are responsible for the adoption agreement, file an annual tax report Form 5500 (if your account exceeds $250,000 in assets), allocate profit sharing contributions and submit a Contribution Remittance Form with each deposit.

Fidelity provides more than 175 Fidelity mutual funds. In total, you have access to over 4,600 mutual funds. 1,400 of those funds have no loads and no minimum investment. Additionally, they send a kit to assist you with your annual Form 5500. Stock purchases are between $19.95 and $8 depending on total asset value in your account. Most Fidelity funds do not have transaction fees, however, they may be subject to a redemption or exchange fee. It seems as though the only fees are for the expense ratios, which can be as low as 0.07% for select index funds.

T. Rowe Price is the second of the heavy hitters offering solo 401k accounts. There are no commissions or setup costs. T. Rowe Price offers more than 65 no-load mutual funds. An annual $10 administrative fee is charged for each mutual fund account with assets less than $5,000. The administrative fee is waived with a total account asset value greater than $50,000. There is a $10 close out fee applied to accounts closed at T. Rowe Price. It appears as though T. Rowe Price offers Roth 401ks as opposed to the traditional 401k that is offered at Fidelity.

T. Rowe Price offers target retirement funds, which are nice for individuals looking to sock money away and forget about it until retirement. T. Rowe Price offers a Total Equity Market Index Fund that has an expense ratio of 0.40%. It seems as though T. Rowe Price offers a broad range of index funds that have expense ratios ranging from 0.40% and 0.90%.

InvestSafe offers an alternative to a Fidelity or T. Rowe Price. InvestSafe acts as a traditional administrator. There is no setup fee, however, there is a annual administrative recordkeeping fee that’s between $0 and $25 depending on the account balance. The fee is waived with an account value greater than $25,000. There is a $250 fee for filing the Form 5500, which is only necessary if your account value is greater than $250,000. You may fill out the Form 5500 on your own and eliminate that fee. InvestSafe does offer a Roth 401k as part of your solo 401k. You can split up your contributions into Roth and Tradition 401k contributions. I don’t know which mutual fund company’s are part of the plan, which is a major negative.

Benefit Plans Plus

Benefit Plans Plus (BPP) offers a very expensive alternative that takes care of all of the paperwork for you. There is a set-up charge of $375 for the plan document and adoption agreement. In addition you have to pay for the postage and handling of this adoption agreement. There is a $250 annual plan maintenance fee. There is a $125 annual fee for an employer contribution calculation. A Form 5500 preparation fee is $125 annually. Mutual fund options are not available without requesting more information. I think anybody reading this blog is too interested in saving money to use a plan with so many fees.

Conclusion

Based on the above options, I would strongly consider both the Fidelity and T. Rowe Price solo 401k accounts. Fidelity has an advantage in the number of available mutual funds with lower expense ratios than T. Rowe Price. On the other hand, T. Rowe Price does appear to offer a Roth 401k option, which may be appealing to some. Personally I am more interested in deferring my taxes for this retirement account as I am also going to be funding a Roth IRA. If I had to choose between the above funds I would choose Fidelity for the lower expense ratios and range of available index funds.

Since my Roth IRA is through Vanguard, I decided to ask Vanguard if they had a self-employed 401k plan. Currently, Vanguard does not offer a solo 401k retirement product, however they are planning on introducing an individual 401k product designed for self employed individuals later this year. I will follow up on this development as I would like to keep all of my retirement accounts with Vanguard to gain access to admiral shares and Voyager and Flagship services as soon as possible.

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13 Responses to Solo 401k Retirement Account for Self-Employed Income

  1. Benefit Plans Plus, LLC (BPP) is a Third Party Administration (TPA) firm that offers customized retirement plan design, administration, fiduciary compliance management and consulting services for retirement plans. Our Solo Business Owner (SBO) 401k product may have higher hard dollar fees than some of the alternatives but we also allow much more flexibility. The Fidelity and T. Rowe Price solutions will typically have a limited number of investments available to the Solo 401k customer. Our SBO 401k product allows the customer to open a brokerage account at the financial institution of their choice or even open an account with E*Trade…it’s up to them. Since BPP is strictly doing the administration (and not receiving any compensation from the investments) we have to charge hard dollar fees to cover the costs associated with the administration. Companies like Fidelity and T. Rowe Price are usually covering the majority of these costs through the compensation they receive on the investments. If you are looking for a well credentialed team of experts to administer your plan and allow you the most flexibility with regard to your investments, please contact me at 314.983.1298 or jmartin@bpp401k.com.

  2. […] Solo 401k Retirement Account for Self-Employed Income […]

  3. plaka999 says:

    Vanguard is about to release their solo/individual 401k this week, according to bogleheads.

  4. pfstartupblog says:

    Thanks for the heads up, I just posted about the details of vanguard’s plan and will be signing up shortly.

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