Best Solo 401k Companies

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Quick Look at the Best Solo 401k Companies:

Opening a solo 401(k) — also called an individual 401(k) — allows self-employed individuals and business owners an opportunity to save for retirement. A solo 401(k) is a type of retirement account for people who are the sole proprietors of companies or who own the company with a spouse.

When exploring retirement options provided by various financial institutions, research each solo 401(k) account to understand the benefits and drawbacks of accounts offered. Benzinga examined solo 401(k) providers in terms of benefits, pricing and reputation to compare the account options.

If you have questions about opening an account, speak with the company’s customer service department, talk to a financial professional and examine customer reviews to have a broader understanding of the company. A solo 401(k) offers self-employed individuals a way to achieve future financial stability for retirement. 

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Best Solo 401(k) Company Overall: Fidelity 

Fidelity has over 75 years of financial experience and has assisted over 40 million individuals. Fidelity offers a wide range of financial services such as cash management, brokerage accounts and mutual funds. Individuals interested in a solo 401(k) can invest in a wide range of options such as bonds, mutual funds, stocks and exchange-traded funds (ETFs). The company offers a solo 401(k) option that does not require a minimum deposit. The accounts do not include opening costs or annual fees and charge $0 commission for U.S. online stock trades. Fidelity charges withdrawal penalty fees. 

Best for No Maintenance Fees: TD Ameritrade 

TD Ameritrade, a subsidiary of Charles Schwab, has been around for more than 40 years. The company trademark is owned by both TD Ameritrade IP Company, Inc. and The Toronto Dominion Bank. TD Ameritrade has a variety of financial tools available to customers such as educational resources, multiple trading platforms and investment products. The company allows individuals to deposit funds or withdraw funds as needed. No maintenance fees are required for the account. This benefit differentiates TD Ameritrade from the competition by giving customers more financial flexibility. In terms of customer assistance, individuals are able to speak with a customer representative or reference the educational tools on the website.

Account options don’t include a Roth option but do include Traditional solo 401(k)s. Customers are not allowed to take out new loans related to their accounts. TD Ameritrade was recently purchased by Charles Schwab, so accounts will likely become a Charles Schwab account in the future. 

Best for Extra Guidance: Merrill Edge

Merrill Edge was formed in 2010 and has over a decade of direct financial experience. The company was founded by both Bank of America and Merrill Lynch to provide a more attainable type of trading account for individuals. The solo 401(k) offered by Merrill Edge allows interested business owners to open either a Traditional or Roth account. One option that allows the account to stand out from the rest is that customers can use tools provided by Morningstar Investment Management LLC. Another major benefit is that customers have the option to take out loans or withdraw funds for a fee. There is no clearly stated minimum deposit, and the company encourages flexible contributions. As specified by the IRS, accounts have an annual contribution limit of $61,000 for 2022. 

The account charges various fees including a setup fee of $100. The account also requires a monthly administration fee of around $20 and $25 depending on the balance. 

Best for Rollover Tax Assets: Vanguard

Vanguard began in 1975 and has grown to provide a variety of financial services such as investment tools and guidance for retirement. The company offers an individual 401(k) that allows people to select either pre-tax or after-tax funds. Like most solo 401(k) providers, the account accepts rollovers of pre-tax assets, and individuals over 59 ½ are able to withdraw funds early for a fee. It requires no minimum starting investment for an account and does not charge setup fees. 

Vanguard requires a $20 annual fee for each fund placed into the account. Individuals are not allowed to take out a loan related to their solo 401(k) accounts. 

Best for Low Fees: Charles Schwab

Charles Schwab has over 40 years of experience and is a leader in online investing. The company handles over 33 million brokerage accounts and oversees daily average trades that total around $6 million. Schwab offers an individual 401(k) option that provides strong customer support. The company has much lower fees than most of the competition with no monthly fees and no maintenance fees. It charges no minimum required amount to open an account. Annual contributions are flexible. Individuals interested in opening an account are encouraged to call the phone number on the website to explore various account options. 

Features to Look for in Solo 401(k) Companies

Selecting the ideal solo 401(k) might feel difficult, but if you weigh features such as anticipated fees, the strength of customer support and the flexibility of each account, it will make your choice simpler. Learn and understand the rules about how a self-employed individual funds an account. Pay attention to the amount of money that you are permitted to place into an account on an annual basis and examine how each company sets up its fee structures. Certain accounts might seem inviting, but on a second look, additional fees might be a reason for reevaluation. When trying to decide on a specific company, speak with a financial professional as well as a professional tax advisor to clearly understand the options available to you. 

Quality of options provided

When deciding on a company that offers a solo 401(k) account, examine what features will be provided. For example, some companies allow people to open either a Roth account or a Traditional account. This freedom lets customers use either pre-tax or after-tax amounts to fund their accounts depending on personal needs. However, certain companies only allow individuals to open Traditional accounts. Some companies provide services such as the ability to take out loans from a solo 401(k) account. In general, it’s not recommended to take out a loan or to withdraw funds early, but the option of such services could prove useful for different individuals.

Strong customer support 

Examine how a company ranks in terms of customer support. Review if the company offers additional tools to expedite the process of placing funds into a solo 401(k) account. Research how available and accessible a company’s customer service representatives are before opening an account. Consider researching customer reviews on review-centered websites to have a better understanding of how customers perceive the company. 

Low fees

Research the company to discover extra costly fees such as monthly or annual fees. High fees add up over time and should be taken into consideration when deciding on a solo 401(k) account. Consider speaking with a company representative to more accurately understand how fees and additional costs are structured. 

Excellent reputation 

Examine companies that offer solo 401(k) accounts in terms of their reputation. Combine customer reviews with feedback from company credit ratings to have a stronger understanding of a company’s stability. 

How to Invest in a Solo 401(k)

Before opening a solo 401(k), learn about Traditional and Roth accounts and their benefits and drawbacks. Investing in a solo 401(k) account has the potential to help provide a business owner with security in the future. When investing, keep in mind that investments are not certain and involve risk. Like all investing, there is no guarantee of how an individual investment will perform. 

Research different Solo 401(k) providers

Many financial institutions such as Fidelity and Vanguard offer solo 401(k) accounts. Each company provides its version of a solo 401(k), which vary in terms of fees and benefits. For example, certain companies offer benefits such as access to automated advisors and extra resources for the retirement process. 

Have your EIN available 

An EIN stands for an employer identification number, and you need one to open a solo 401(k). It is like a Social Security number for a business. The number can be obtained from the IRS online. It’s possible to open a business using your personal Social Security number, but you will likely need to obtain an EIN to open a solo 401(k) account. 

Place funds into an account

Usually, an individual has the ability to select between a Traditional and a Roth account. Take your time deciding on what funds you would like to place into an account. Certain account providers have minimum fund requirements that could potentially act as a barrier to entry for people with lower funds. Before opening and funding an account, be sure to check if a provider requires an initial account minimum.

Choose investments 

To place funds into an account, a person must first be approved by the provider. Once funds are placed into an account, avoid making early withdrawals. To lessen the likelihood that you will need to take out funds early, only place funds into the account that you are able to leave untouched for an extended amount of time. Investments tend to perform best over a longer period. 

If you are unsure about specific paperwork or processes, consider speaking with a financial professional to clearly understand the process of opening and using a solo 401(k). The IRS expects a certain amount of paperwork returned in connection to the account so it’s best to have a working knowledge of the needed documents. 

How you can Improve Your Finances

Improving your finances is a constantly evolving journey. Boosting your financial situation often requires a high level of financial self-awareness. Analyze your debt, spending habits and future goals when working to grow your net worth. 

Know your spending 

When trying to improve your finances, it’s highly recommended to analyze your spending habits. Understand how much you earn on a monthly or yearly basis compared to how much you spend. One easy ratio that allows you to better understand your financial situation is the debt-to-income ratio. The debt-to-income ratio reveals how much a person spends compared to how much they earn. Lower ratios indicate that a person has less debt than earnings. Ratios lower than 30% are considered good. This ratio has the potential to impact your ability to obtain personal loans and credit cards. 

Pay your bills

Paying bills promptly has the potential to improve an individual’s credit score. Paying off credit card bills will likely boost your credit score. Think about setting up automatic credit card payments to avoid late fees. Autopayments protect against missed payments and have the potential to increase an individual’s credit score. 

In addition to improving credit, paying debt off helps protect against higer interest rates. Avoid accumulating high interest on debt such as loans and credit cards by promptly and fully paying off payments when possible. 

Grow your savings 

Savings can be broken down into different categories such as savings for retirement and savings for an emergency. It’s recommended to have an emergency fund with at least three months worth of expenses. The emergency fund should be updated regularly to more accurately reflect your changing lifestyle such as higher levels of income. Avoid lumping your emergency fund with other funds such as your retirement fund. Unlike a retirement fund, an emergency fund should remain liquid so that it is easily accessible during an emergency. Once your retirement fund is sufficiently padded, explore additional savings options. 

Plan for the future

When saving and investing, several financial goals or benchmarks in mind can turbocharge your progress. For example, think about creating five years and 10 years of financial goals. Such extended goals can combine with more immediate benchmarks to provide a set course of action. Goals and benchmarks can be created with the help of a financial professional to bolster the health of your financial future.  

Frequently Asked Questions 

Q

What are the benefits of a solo 401(k)?

A

The retirement account provides benefits for people who don’t have access to a 401(k) offered by employers. Business owners eligible for a solo 401(k) usually have the option to create a Roth plan or a Traditional plan. A Roth account lets individuals use after-tax dollars and allow funds deposited within the account to grow without needing to pay additional taxes at the time of withdrawal. In contrast, a Traditional account uses pre-tax amounts, so the funds are taxable at the time of withdrawal. 

Thr maximum contribution amount for solo 401(k) accounts is higher than for IRA accounts. Another notable benefit of a solo 401(k) account is that it accepts a wider range of funds. Keep in mind that the IRS still prohibits certain investment options such as antiques and specific coins.

A solo 401(k) gives self-employed and freelance individuals options to prepare for retirement. 

Q

Who can open a solo 401(k)?

A

A solo 401(k) allows self-employed individuals and owners to begin saving for retirement. It’s intended to assist people who do not have W-2 employment and instead work for themselves. The accounts are usually held by business owners who have no full-time employees. The business owner is generally the sole proprietor. However, a business owner can run a business in combination with their spouse and still qualify for a solo 401(k) account. 

Q

Can an individual manage a solo 401(k)?

A

Yes. A person is able to manage their own solo 401(k) and select the specific type of account. For example, a self-employed person could choose a Traditional or Roth account. The accounts are typically handled at the individual level. Make sure you have time for and are comfortable directly managing your solo 401(k) account; if not, you can set one up with a professional or robo advisor. 

Q

How much can an individual contribute to a Solo 401(k)?

A

An individual has the ability to contribute to a solo 401(k) as elective deferrals and nonelective contributions. You can make contributions to an account as both an employee of the company and the owner of the company. Elective deferrals can extend up to the maximum income allowed per year. For individuals under 50 years of age, the maximum annual amount allowed for elective contributions in 2022 is $20,500. 

The IRS provides insight into how a business owner is able to effectively calculate account contributions. In 2022, the total amount an individual business owner is allowed to contribute to an account is $61,000.

Q

Are there tax advantages to a solo 401(k)?

A

Yes, a solo 401(k) provides multiple tax advantages, and an individual has the ability to choose which advantages would work best for them. For example, a business owner typically has the freedom to select between a Traditional and Roth account. A Traditional account gives the owner a tax break in the year the contributions are made. The Roth account lets people obtain a tax break in the future because taxes were initially paid during the time of contribution. 

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