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Solo 401(k) retirement planning

The 4 solo 401(k) providers to consider for 2024

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If you're a business owner, sole proprietorship, or freelancer who doesn't have any employees, you likely qualify for a solo 401(k). And this plans annual contribution limit is up to $61,000 in 2022; much higher than you'll find with a regular IRA.

However, there are numerous solo 401(k) providers on the market, many of which have different fees, loan rules, and options like Roth contributions. But it's important to pick a provider that has the features and pricing that makes sense for you.

The solo 401(k) companies to consider

To qualify for a solo 401(k), you need to be a self-employed individual who doesn't have any employees. You can still add your spouse to your plan, and you can even have a regular job while using a solo 401(k) for a side business of yours.

If this sounds like you, here are four of the best solo 401(k) plan providers you can consider.

Best for mutual funds: Fidelity

Fidelity offers a no-fee solo 401(k) plan that also lets you invest in a range of stocks, ETFs, mutual funds, CDs, and bonds. Right off the bat, this means you're already saving money each year since many 401(k) plan providers charge some sort of administrative fee.

Fidelity is also one of the best brokers to invest in mutual funds since it offers over 10,000 funds, with over 3,300 having no transaction fees. The company also has its own funds that don't have trading fees.

The main downside of Fidelity is that you can only make contributions to your 401(k) via phone or email. But the lack of fees and variety of mutual funds are two main selling points that help offset this small inconvenience. And Fidelity offers 401(k) loans, which isn't the case for every provider.

Best for low expense ratios: Vanguard

If you ever invest with a robo-advisor or work with a financial advisor, there's a good chance you're going to end up investing in various Vanguard funds. That's because Vanguard is an industry leader in terms of mutual fund and ETFs. Not only does the company offer a diverse range of funds, but many have much lower average expense ratios than your average fund, helping you get higher returns in the long run.

And with a solo 401(k) plan from Vanguard, you can invest in its 100+ mutual funds and range of ETFs without paying commissions. This includes many Admiral Shares, which have even lower expense ratios than normal funds. There's no minimum investment requirement, and this plan is the best option for true Vanguard loyalists.

The main downside of Vanguard's solo 401(k) plan is that you pay a $20 annual fee for each fund held in your account. However, Vanguard waives this fee for all plan participants if at least one member has at least $50,000 in qualifying Vanguard assets. Also note that you can't take out a 401(k) loan.

Best for alternative investments: Rocket Dollar

Since most solo 401(k) providers are online brokers, you're normally restricted to invest in securities like stocks, ETFs, mutual funds, and bonds. This isn't usually a problem, but if you want to add alternative investments into your solo 401(k), you're out of luck.

Thankfully, companies like Rocket Dollar offer excellent self-directed IRAs and self-directed solo 401(k) plans that give you full control over the assets you invest in. This means you can invest in real estate, artwork, cryptocurrencies, private equity and other asset classes to diversify your portfolio.

For pricing, Rocket Dollar's Silver plan has a one-time $360 setup fee and $15 monthly fee. The Gold plan costs $30 per month and has a $600 setup fee but provides some tax prep assistance, priority support, and four free wire transfers per year. For large portfolios, Rocket Dollar's fees become increasingly more affordable, but fees might be high for a brand new solo 401(k).

Best for experienced investors: E*TRADE

E*TRADE is a leading online broker that's largely known for its feature-rich Power E*TRADE platform that caters to active traders who use technical analysis. It's also a popular options trading platform since active traders can get lower contract rates versus many competitors.

But E*TRADE is also an excellent option for opening a solo 401(k). For starters, it accepts both Traditional and Roth 401(k) contributions. And right now, you can get up to $3,500 through its broker promotion for opening an account, depending on how much you deposit.

Like Fidelity, E*TRADE also has thousands of no-transaction fee funds. You don't pay trading commissions on stock and ETFs either. E*TRADE also supports 401(k) loans and doesn't charge monthly account fees.

When should you open a solo 401(k)?

If you're a small business owner or freelancer with no employees and you want to save for retirement, opening a solo 401(k) can be an excellent idea. The fact this account accepts contributions from both the employer and employee, which are both your roles, means you have a much larger annual contribution limit than a regular IRA.

Setting up your solo 401(k) can take some time, but it's an excellent retirement investing vehicle if you can qualify and don't have any employees. And remember: you can add a spouse to your 401(k) plan as well.

Pros and cons

Pros

Pros

  • A 401(k) can accept contributions from both an employer and employee, which are both of your roles if you're self-employed

  • You can add catch-up contributions if you're over the age of 50

  • Some 401(k) plan providers offer 401(k) loans

  • Business owners, sole proprietorships, and freelancers can all be eligible to open a solo 401(k) as long as they don't employ anyone (with the exception of a spouse)

  • A solo 401(k) has a higher annual contribution limit than a regular IRA

  • You can potentially open a solo 401(k) for a side hustle or side business even if you have a regular job

Cons

Cons

  • Some 401(k) plan providers charge ongoing maintenance fees

  • You have to manage your plan by yourself

  • You pay early withdrawal fees if you make withdrawals before the age of 59 and a half

  • Setting up your account requires some paperwork and time

Read moreThe advantages of self-directed solo 401(k) plans for self-employed individuals

What to look for in your solo 401k

Some of the most important factors to consider when choosing the right solo 401(k) plan for you include:

  • Fees: Brokers like Fidelity are at the top of our list due to the lack of account setup and management fees. However, fees are sometimes worth it if you get better customer service, features, or perks that are worth the extra cost.
  • Available assets: Platforms like Rocket Dollar are popular since they let investors access a wider range of asset classes than most brokers. This can be a selling point for some, but if you're happy with stocks and ETFs, it's not important.
  • Features: Various brokers have different features that can make them more attractive for your solo 401(k), as well as other potential account types. Access to financial advisors, robo-advisors, financial calculators and even banking products like high-yield savings accounts might tip one company in your favor if you want to hold all your accounts under one roof.
  • Rollovers: Pretty much every leading broker accepts rollovers when opening a 401(k), which largely levels the playing field. But if you go with lesser-known providers, this might not be such an easy option.

Methodology

At Moneywise, our top priority is to empower our readers with accurate and unbiased information about a wide range of financial products. We firmly believe in the importance of providing transparent and reliable reviews, which is why we go to great lengths to ensure that our evaluations are free from any marketing or affiliate influences that could affect our objectivity. Read more about our review methodology.

Bottom line

Being completely on your own to manage your own retirement investing might seem daunting. But the reality is you can still invest in a range of assets and take advantage of tax benefits with a solo 401(k). And you don't need to overspend on fees or jump through hoops to do so.

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Tom Blake Staff Writer

Tom Blake is a staff writer who specializes in cryptocurrency, investing, and passive income.

Disclaimer

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