Solo 401k Providers: How to Choose One for Retirement Plan?
Solo 401k plans are among one of the prominent retirement solutions available in the market, especially because of their higher contribution limits and alternative investment options. These plans not only allow a higher contribution limit, but also offer tax-free or tax-deferred growth for your investments. However, the features of Solo 401k plan vary from one provider to another, making it necessary to do your research on Solo 401k providers before opening an account.
What are the key parameters differentiating Solo 401k providers?
- Alternative investments
- Solo 401k plan fee
- Checkbook control
- Participant loan
Start with a comparison of different plan providers based upon these factors. While choosing a Solo 401k provider, seek out a company that offers each of these services instead of focusing primarily on the fees.
Solo 401k providers fall under three categories: Brokerage firms, Solo 401k custodians, Solo 401k Administrators.
Brokerage firms involve big names in the financial industry such as Vanguard, Fidelity, and Schwab. There is no doubt about the quality of service and trust that customers put in these companies, however, they have a specific set of rules governing Solo 401k plans. These firms usually limit alternative investment options and might not offer the participant loan option to the plan owners. These companies may offer free account setup and annual maintenance, but there might be other hidden charges such as low balance, management fees, or short term trading fees, which could eat up your returns.
Solo 401k custodians are second-tier service providers, who offer alternate investment options, but may require custodian consent. When we talk about investments such as real estate or precious metals, market conditions play a huge role and these decisions are often time sensitive. You might lose an important deal just because your custodian was reviewing the documents. Further, the reviewing process may involve additional fee or processing charges, limiting your overall growth.
Self directed Solo 401k providers are the last group of providers, who offer the same set of benefits as the custodian companies, while adding key features such as participant loan and checkbook control to the plan. You can benefit from a huge range of investment options, including real estate, precious metals, private business, and many more, without seeking custodian consent. Further, these providers often allow participant loans of up to $50,000 or 50% of the account balance, making Solo 401k a critical credit option for small business owners.
In short, choosing Solo 401k providers in accordance with your financial requirements is the best strategy in place. Make sure to do your due diligence and understand the different types of Solo 401k plan providers before making any decisions.