My Personal Finance Blog

As I mentioned in an earlier post on Saving on taxes through additional retirement savings I’ve selected an administrator for our solo 401K. In the end after talking with nearly a dozen providers it came down to two choices.

I was tempted by Fidelity’s Self-Employed 401K because they’ve made the sign-up process so easy. There are also no fees aside from the commissions you’d pay on your investments. Since we’d only be making contributions once per year the commissions wouldn’t be a big deal. I also have another 401K with Fidelity and like the tools they have available.

In the end however, I chose to go with 401KBrokers and to house the investments at Vanguard. I like Vanguard’s fund choices, and their online tools are decent. 401K Brokers charges no set up fees and has a yearly fee equal to .25% (25 basis points) of assets. While this was a turn-off for me at first when I did the math I found that this administrative fee was not that big a deal. Even if I roll our old 401K’s into the new plan (more on why we might do this later) the fees will only be a bit over $250. To offset this there is a 50% tax credit. The credit equals 50% of the cost to set up and administer the plan and educate employees about the plan, up to a maximum of $500 per year for each of the first three years of the plan. An added bonus is that they will prepare the required tax forms if our plan exceeds $100K in assets.

I also chose 401K Brokers because they allow loans from the plan. While I don’t advocate borrowing from a retirement plan this was important to me in case we need the flexibility to access our money. I would much rather pay interest to myself than another party if it becomes necessary for us to borrow. So because of this, we’ll likely be rolling over some, or all of our existing retirement plans to our solo 401K. We can then borrow up to 50% of the balance or $50K. 401K Brokers does not charge loan fees as well which is another advantage they have over the competition.

So the paperwork has been filled out and mailed in. The next step is for 401K Brokers to prepare our plan document and email it to me. As long as this is done before 12/31 at midnight we’re good. I shouldn’t have waited as long as I did to get this done but I was on the fence as far as who to use as an administrator (the main point of concern for me being the asset based fee that 401K Brokers charges.)

Once all of our tax documents arrive in late January/early February we’ll sit down and determine how much income we can put into the plan and defer the taxes on. since our income was higher than normal this year due to my wife’s severance payment, our relocation allowance and income from the side-business we’ll likely be in a higher tax bracket than next year. I came up a couple hundred dollars short of the $15,000 limit for my 401K contribution and my wife is several thousand short. We’ll max those out plus put as much of the side-business’ profits into our plans as possible. While we can’t really afford the cash right now it makes sense for us to capture the thousands of dollars in tax savings we’ll have.

If you’re interested in setting up you’re own solo 401K I recommend you go with Fidelity at this point. They have an online sign-up process that means you can do it last minute. T Rowe Price also has a decent program but I am not as familiar with their online tools.