What is a Solo 401(k) Plan?

Last Updated on 26th July 2022 by Jeffrey Camerda

Small company entrepreneurs who work for themselves may save money down in a tax-advantaged solo 401(k). Unlike huge corporate 401(k)s, solo 401(k)s are just for the business owner and their spouse. Both pre-tax and Roth contributions may be made and 401(k) account loans can be taken, similar to an employer-sponsored 401(k). A variety of investment options and fees are available, depending on the account provider you choose.

The Best Companies for Solo 401(k)s

Fidelity Investments

Due to its low costs, the broad variety of investment options, and focus on retirement savings, Fidelity’s self-employed 401(k) plan is our overall favorite.

Pros

  • Trading stocks or ETFs is free of commissions and there are no monthly account fees.
  • Many mutual funds, including four from Fidelity, do not charge transaction fees.
  • Investing and saving for retirement may be made easier with the use of retirement tools such as calculators, apps, and educational materials.

Cons

  • The need for more powerful trading tools is common among aggressive traders.
  • Contributions cannot be made electronically.

As a result, Fidelity’s Self-Employed 401(k) plans have been rated the best overall for fee-conscious investors. Neither an initial setup fee nor an annual fee is required for the Fidelity solo 401(k). With no trading fees, customers may buy and sell stocks, ETFs, and more than 3,400 mutual fund options. Fidelity does not charge any fees for small company owners to open this account. However, the $32.95 broker-assisted trading cost may be a hindrance if you want assistance placing orders.

Charles Schwab

Charles Schwab’s Individual 401(k) Plan is the best option for minimal costs. There are over 4,000 no-load, no-transaction-fee mutual funds available with this account, and there are no account setup or maintenance costs. Schwab Intelligent Portfolios, the company’s robo-advisor, is free for customers.

Pros

  • Creating a new account is free and there are no ongoing payments.
  • For free, you may trade stocks, ETFs, and mutual funds.
  • A free robo-advisor is available.

Cons

  • Individual 401(k) loans are not permitted.
  • Some mutual fund transactions and broker-assisted trades charge a lot of money.

It’s hard to beat Charles Schwab when it comes to minimal costs for a solo 401(k). There are no ongoing fees or setup costs for Schwab’s version of the software. On the Schwab OneSource funds list, there are over 4,000 no-transaction-fee funds that may be traded commission-free. You should be aware that automated phone transactions at Schwab cost $5, while broker-assisted trades cost $25. However, this account does not charge any fees to many clients.

E*TRADE

With E*TRADE’s solo 401(k) plan, you have additional options. Individual 401(k) and Roth 401(k) plans are both supported by E*TRADE. E*TRADE’s 401(k) loan option is also available, making this broker our top pick for account features.

Pros

  • Traditional and Roth 401(k) contributions may be made at the same time if desired.
  • Supports Loans from 401(k) accounts
  • Free stock and ETF trading with no recurring account fees.

Cons

  • Since Morgan Stanley has taken over, expect some adjustments.
  • Expensive broker-aided trading as well as various mutual fund trading charges

E*Transaction has supported online investors since 1983 when the company’s first online trade was completed. After a deal that was finalized in October 2020, it is now a subsidiary of Morgan Stanley. Traditional and Roth individual 401(k) plans are available at E*TRADE, allowing you to make pre-tax or post-tax contributions. E*TRADE allows you to obtain a 401(k) loan from a personal 401(k) account.

Vanguard

Vanguard’s mutual funds and ETFs are well-known. A Vanguard Individual 401(k) plan allows you to invest in Vanguard funds with no trading fees, making the business our top pick for mutual funds.

Pros

  • To open an account, there is no charge.
  • With no commissions or load fees, you can trade the Vanguard family of funds.
  • Roth IRA donations are allowed.

Cons

  • For each Vanguard fund housed in this sort of account, there is a $20 yearly charge.
  • There is no assistance for 401(k) loan repayments.

The Vanguard Individual 401(k) is a good option if you want to remain with Vanguard’s well-regarded lineup of mutual funds. For accounts with a minimum of $10,000 in Vanguard funds, the account does not charge an annual fee. Under that threshold, there is a $20 yearly fee, plus an additional $20 for each Vanguard fund in the account. In certain cases, this cost might quickly pile up and make it worthwhile to purchase Vanguard funds from a different provider. In addition to options and fixed-income products, you may trade stocks and ETFs without paying a fee.

TD Ameritrade

Investors aiming for a comfortable retirement should adhere to a passive strategy. TD Ameritrade, on the other hand, has the best platforms and tools for active investors.

Pros

  • You can choose from a variety of platforms, including web, mobile, and desktop.
  • Thinkorswim is a cutting-edge trading program that you may use for free.

Cons

  • Eventually, Charles Schwab will be the new home for all of our accounts (thinkorswim will be retained)
  • For novice traders, advanced trading platforms might be intimidating.

One of the most well-known discount brokerages, TD Ameritrade, is our top pick for aggressive traders. Individual 401(k) accounts are free of recurring fees, and transactions in stocks and ETFs are free of commission. Thinkorswim’s active trading platform, which is accessible on PC, mobile, and the web, is its most notable feature for active traders.

It’s crucial to understand that this brokerage has been purchased by Charles Schwab before discussing any additional facts. Accounts with TD Ameritrade will eventually be merged with those of Schwab. You can see from this evaluation that we like Schwab and are excited to see what they can do when they are fully integrated.

Rocket Dollar

If you can buy anything with a checkbook, you can invest in it with Rocket Dollar. As a result, you may make non-traditional investments like real estate while still benefiting from the tax benefits of a single 401(k).

Pros

  • You may invest in real estate and other alternatives with “checkbook control.”
  • Loans made from 401(k)s and Roth deposits are encouraged
  • A free wire transfer, check, and tax form filing option is available for those with a higher-level account.

Cons

  • A $15 monthly subscription and a $360 setup cost are required for basic (Core) accounts.
  • A monthly cost of $30 and a $600 startup fee are required for Premium (Gold) accounts.

Rocket Dollar may be a good option if you don’t want to be constrained by regular financial markets. Instead of stocks, ETFs, mutual funds, and bonds, Rocket Dollar accounts enable you to invest in any asset that the IRS permits. Rental properties, fix-and-flip real estate, or land that you believe will rise in value are all examples of investments that might be made. Rocket Dollar is the finest solo 401(k) for real estate investing because of its flexibility, but you can also invest outside of the real estates, such as in private investments in a company or precious metals. 

Jeffrey Camerda

Dr. Jeffery Camerda, PhD, is a financial planner who specializes in wealth management and retirement planning. With a PhD in Economics and Financial Planning, Jeffery represents the highest level of financial planning expertise and achievement in the USA In addition to preparing you for a career in financial planning, a PhD in economics and finance also prepares you for academic pursuits, such as becoming a university professor in teaching or doing research. Here at the Wealth Builder, our financial advisory company was founded in 2007 and services all across the USA with over 16 years of expertise. In order to provide the finest advice and services, we pay close attention to the specific financial circumstances and requirements of each client. In order to guarantee that our clients don't get a sales pitch for insurance or investments, as well as a lack of conflict of interest from a prospective commission-bearing corporations, Jeffery focuses on fee-based services. Financial planning for wealth managers, financial well-being workshops, and personal financial planning packages are all part of the company's offering. Jeffrey Camarda, PhD, CFA, EA is also the founder of the Family Wealth Education Institute, is a member of the Financial Planning Association and serves as the Chairman of Camarda Wealth Advisory Group

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