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If you own a business, sole proprietorship, or freelancer with no employees, you likely qualify for a single 401(k). And that 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 individual 401(k) providers on the market, many of which have different fees, lending rules, and options like Roth contributions. But it’s important to choose a provider that has features and prices that make sense.
The Best Solo 401(k) Companies.
To qualify for a single 401(k), you must be self-employed with no employees. You can still add your spouse to your plan, and you can even have a regular job while using a single 401(k) for a side business.
If that sounds like you, here are five of the best solo 401(k) plan providers to consider.
1. Charles Schwab
With no account opening fees or monthly maintenance fees, Charles Schwab has one of the best solo 401(k) plans if you’re looking to keep costs down. It also allows you to trade stocks and ETFs without paying commissions, as well as several thousand mutual funds without transaction fees (NTFs).
Another benefit of using Charles Schwab for your solo 401(k) is that you can use their robo-advisor service which is also free. This helps you build a customized portfolio of multiple ETFs that match your risk tolerance and investment goals. There is a minimum investment of $5,000 for smart wallets, and you can upgrade to the premium version and work with human advisors if you invest at least $25,000.
Charles Schwab is also a comprehensive broker in general. For example, you can trade fractions of stocks, bonds, and CDs. One of the only downsides to your 401(k) is that Schwab doesn’t offer 401(k) loans.
Like Charles Schwab, Fidelity offers a no-fee stand-alone 401(k) plan that also allows you to invest in a variety 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 for investing in mutual funds, offering more than 10,000 funds, with more than 3,300 without transaction fees. The company also has its own funds that have no trading fees.
The main downside to Fidelity is that you can only make contributions to your 401(k) by phone or email. But the lack of fees and the variety of mutual funds are two main selling points that help make up for this small drawback. And Fidelity offers 401(k) loans, which not all providers do.
If you ever invest with a robo-advisor or work with a financial advisor, there’s a good chance you’ll end up investing in several Vanguard funds. That’s because Vanguard is an industry leader in mutual funds and ETFs. Not only does the company offer a wide range of funds, but many have much lower average expense ratios than your average fund, helping you earn higher returns over the long term.
And with a solo 401(k) plan from Vanguard, you can invest in its more than 100 mutual funds and its range of ETFs without paying fees. This includes many Admiral shares, which have even lower expense ratios than regular funds. There is no minimum investment requirement, and this plan is the best choice for true Vanguard loyalists.
The main downside to Vanguard’s solo 401(k) plan is that you pay a $20 annual fee for each fund in your account. However, Vanguard waives this fee for all plan participants if at least one member has at least $50,000 in qualified Vanguard assets. Also note that you cannot take out a 401(k) loan.
4. Rocket Dollar
Because most individual 401(k) providers are online brokers, you are typically restricted to investing in securities such as stocks, ETFs, mutual funds, and bonds. This isn’t usually a problem, but if you’re looking to add alternative investments to your 401(k) alone, you’re out of luck.
Fortunately, companies like Rocket Dollar offer excellent self-directed IRAs and self-directed individual 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 setup fee of $360 and a monthly fee of $15. The Gold plan costs $30 a month and has a $600 setup fee, but offers some tax preparation assistance, priority assistance, and four free bank transfers per year. For large portfolios, Rocket Dollar’s fees are increasingly affordable, but fees can be steep for a new solo 401(k).
Better for: Experienced investors
E*TRADE is a leading online broker that is largely known for its feature-rich power E*COMMERCE platform that caters to active traders who use technical analysis. It is also a popular options trading platform as active traders can get lower contract fees compared to 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 their broker promotion for opening an account, depending on how much you deposit.
Like Fidelity and Schwab, E*TRADE also has thousands of transaction-free commission funds. You also don’t pay stock and ETF trading fees. E*TRADE also supports 401(k) loans and charges no monthly account fees.
When Should You Open a Solo 401(k)?
If you’re a small business owner or freelancer with no employees and want to save for retirement, opening a single 401(k) can be an excellent idea. The fact that this account accepts both employer and employee contributions, which are your roles, means you have a much higher annual contribution limit than a regular IRA.
Setting up your own 401(k) can take some time, but it’s an excellent retirement investment vehicle if you can qualify and don’t have an employee. And remember: You can also add a spouse to your 401(k) plan.
Advantages and disadvantages
- A 401(k) can accept contributions from both an employer and an employee, which are your roles if you’re self-employed.
- You can add catch-up contributions if you are over 50
- Some 401(k) plan providers offer 401(k) loans.
- Business owners, sole proprietors, and the self-employed may be eligible to open a solo 401(k) as long as they do not employ anyone (except a spouse)
- A single 401(k) has a higher annual contribution limit than a regular IRA
- You may be able to open a single 401(k) for a side business or side business, even if you have a regular job.
- Some 401(k) plan providers charge ongoing maintenance fees
- You must manage your plan for yourself
- You pay early withdrawal fees if you withdraw before age 59 1/2
- Setting up your account takes a bit of work and time
Read more >>> The benefits of self-directed 401(k) plans for the self-employed.
What to look for in your Solo 401k
Some of the most important factors to consider when choosing the right 401(k) plan for you include:
- Rates: Brokers like Charles Schwab and Fidelity are at the top of our list due to the lack of account setup and management fees. However, sometimes the fees are worth it if you get better customer service, features or benefits that are worth the extra cost.
- Assets available: Platforms like Rocket Dollar are popular because they allow investors to access a wider range of asset classes than most brokers. This may be a selling point for some, but if you’re happy with stocks and ETFs, it’s not a big deal.
- Characteristics: Different brokers have different features that can make them more attractive to 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 can tip a company in your favor if you want to keep all your accounts under one roof .
- Rollovers: Almost all major brokers accept changes when opening a 401(k), which largely levels the playing field. But if you’re going with lesser-known providers, this might not be such an easy choice.
Additionally, the companies on this list in no way influenced their inclusion or position in this article. There are still plenty of other solo 401(k) providers you can turn to. But we think the five options on this list are currently the best.
Being completely alone in managing your own retirement investment can seem daunting. But the reality is that you can still invest in a range of assets and take advantage of the tax benefits with just one 401(k). And you don’t have to overspend on fees or jump through hoops to do it.