Solo 401ks, which are also referred to as individual 401ks and self-employed 401ks, are available to people who own their own business but do not have any full-time employees other than themselves and their spouses.
Nearly every kind of small business, including C corporations, S corporations, partnerships, proprietorships, and LLCs, can qualify for a solo 401k plan. However, just because you know you can qualify for one doesn’t mean you know who the best solo 401k providers are so you can get a plan that is right for you.
Finding the right 401k provider is critical to your investment success. You want to choose a provider that has your best interests at heart. You don’t want a provider that is only interested in selling you the products that give them the most commission. For this reason, you will want to think about several factors before choosing the provider that will administer your individual 401k plan.
Factors to Consider When Looking at Solo 401k Providers:
The biggest factor you need to think about when choosing a 401k provider is how much control you want over your investment options.
Some people are fine with investing in more traditional funds like stocks, bonds, and mutual funds. However, other business owners want to be able to invest in a wide variety of assets including precious metals, foreign currency, tax liens, trust deeds, and real estate. If you are more of a conservative investor who is content to choose from a limited number of investment options, choose a 401k provider that offers traditional solo 401k plans.
If, however, you are interested in directing your own investments and having complete control over where your money goes, you will want to find solo 401k providers that offer self-directed 401k plans. This will allow you to essentially write a check and purchase an asset you intend to use as an investment. As long as you follow the IRS rules governing self-directed investments, you can purchase just about anything you want. There are some exceptions, of course, but for the most part, nearly any asset is fair game.
Service should also play a key role in choosing a 401k provider, particularly if you choose a self-directed plan. You want to be able to get into contact with your provider whenever you want to make an investment. If your provider makes things difficult, then you could miss out on some very lucrative opportunities. Be sure to speak with other investors who use the providers you are considering so you can get an idea of the quality of their service.
Fees are another critical consideration when choosing an individual 401k provider. Many providers charge a fee for every transaction you make. If you choose a self-directed 401k plan, those fees are really going to add up, particularly if you make a lot of investments. If you are going with a traditional plan, a fee-per-transaction structure isn’t a bad idea. However, if you choose a self-directed account, find a provider that offers a flat yearly fee. This will prevent the fees from eating into your profits.
Other Provider Considerations:
When choosing solo 401k providers, it really comes down to how you feel when you discuss your financial needs with the administrator.
If you feel good about handing your money over to them, then you are probably going to be satisfied with your selection. On the other hand, if you are uncomfortable with the idea of a specific provider having some control over your money, you might want to look elsewhere. Believe it or not but your gut instinct will tell you a lot.
Overall, it is to your benefit to choose a provider that offers both traditional 401k plans and self-directed 401k plans. This way, you can choose which option is best for you. If you start out with one type of plan, it won’t be very difficult to switch to the other one if you find the first one doesn’t work well for your investment needs. Just know that you are able to change providers and rollover your funds if you ever need to. This option can be a safety net for you in case you make a mistake.
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