Understanding Solo 401k Fees and Costs

Solo 401k fees can be complex and confusing, but understanding them is crucial to making the most of your retirement savings.

The annual maintenance fee for a solo 401k plan is typically around $150 to $300, depending on the provider.

This fee is usually a flat rate and is charged to maintain the plan and provide administrative support.

Some providers may also charge a set-up fee, which can range from $25 to $500.

This fee is a one-time charge to establish the plan and can be a good investment if it saves you money in the long run.

The management fee for a solo 401k plan can range from 0.10% to 1.00% of your account balance.

This fee is charged annually and is usually a percentage of your total account balance.

The investment fees associated with a solo 401k plan can vary widely, ranging from 0.05% to 2.00% of your account balance.

These fees are charged by the investment companies and can eat into your retirement savings over time.

It's essential to carefully review the fees and costs associated with your solo 401k plan to ensure you're getting the best value for your money.

Contributions to a solo 401(k) plan are made up of two parts: elective deferrals and employer nonelective contributions. The maximum elective deferral is the lesser of 100% of earned income or $23,000 in 2024.

As a business owner, you may also make employer contributions to your solo 401(k) plan. These contributions can be up to 25% of your compensation, which is considered your net earnings minus one-half of your self-employment tax and your employee elective deferrals. The maximum compensation for the purpose of employer nonelective contributions is $345,000 in 2024.

Your business can contribute up to 20-25% of compensation, depending on how your business is classified from a tax standpoint. If you're a sole proprietor, you can take 20% of your net earnings, which is your net profit from the business minus the deduction for half of your self-employment taxes.

The maximum total contribution to a solo 401(k) account is $69,000 in 2024. This includes both elective deferrals and employer nonelective contributions.

You can reduce your taxable income by contributing to a traditional 401(k) plan, which means you'll pay less in taxes upfront.

Contribution limits for solo 401(k) plans are the same as those for larger company 401(k) plans, at $23,000 in 2024.

Making pre-tax contributions to a traditional 401(k) plan means you won't pay income taxes on those contributions until you take distributions.

You can opt for Roth contributions in a solo 401(k) plan, which means you'll make after-tax contributions, but enjoy tax-free investment growth and qualified distributions.

If you have a taxable income of $100,000 and contribute the maximum amount to your 401(k), your taxable income will be reduced to $77,000.

With a solo 401(k), you have complete control of your investments, giving you access to all the securities offered by your chosen online broker.

This level of control can be both a benefit and a challenge, as you'll need to build a diversified portfolio that aligns with your retirement goals.

You'll be required to file an annual report on Form 5500-EZ if your solo 401(k) has more than $250,000 in assets at the end of the year, but no report is needed for assets under $250,000.

With a solo 401(k), you have complete control of your investments.

You can choose an online broker that offers a wide range of securities, giving you more options than a typical employer-sponsored retirement plan.

This freedom can be both a blessing and a curse, as you'll need to make informed decisions about your investments.

A diversified portfolio can help you reach your retirement goals while minimizing risk.

You can choose from mutual funds and ETFs, but be aware that some solo 401(k) plans may only offer a limited menu.

Target-date funds are often included in these menus, but they may not be the best choice for everyone.

Building a diversified portfolio takes time and effort, but it's essential for a secure financial future.

Ongoing compliance is a crucial aspect of managing your investment portfolio. Solo 401(k) plans, in particular, have relatively low ongoing administration and compliance requirements compared to traditional company plans.

If your solo 401(k) has more than $250,000 in assets at the end of the year, you'll need to file an annual report on Form 5500-EZ.

If the disadvantages of the solo 401k outweigh the benefits in your situation, there are other tax-advantaged retirement plan options for self-employed and entrepreneurial physicians.

For self-employed physicians who are not satisfied with the solo 401k, there are alternatives available.

The solo 401k is not the only option for self-employed physicians, and exploring other options is a good idea.

The fees charged by some solo 401k providers can be a major turn-off for self-employed individuals. We don't charge any hidden fees on your Solo 401(k) account.

Our flat setup and annual fees are transparent and straightforward. You can call us at 800-489-7571 or email [email protected] to learn more.

We charge a flat annual fee of $125, which covers IRS required plan document updates and ongoing support.

Our annual fee also covers the preparation of Form 1099-R for all annual distributions, as well as education regarding investment rules.

Side-gig workers have unique considerations when it comes to retirement planning.

The 401(k) contribution limits apply per person, not per plan.

You can contribute to both your employer-sponsored 401(k) and a solo 401(k), but be aware of the $23,000 limit in 2024.

Here are some possible scenarios for allocating your 401(k) contributions:

If your employer offers a matching contribution, it's worth contributing at least enough to earn that extra contribution.

If the disadvantages of the solo 401k outweigh the benefits in your situation, there are other tax-advantaged retirement plan options for self-employed and entrepreneurial physicians.

One such option is the SEP-IRA, which allows self-employed individuals to contribute up to 20% of their net earnings from self-employment to a traditional IRA.

A SEP-IRA is particularly beneficial for those who have varying income levels, as the contribution percentage can be adjusted each year.

Another option is the SIMPLE IRA, which offers a higher contribution limit than a traditional IRA and allows for a 10% to 15% match from the employer.

Many online brokerage companies offer solo 401k plans with low to no fees, depending on your portfolio value.

You can open a solo 401k plan with a company where you already have a taxable brokerage account, which can simplify fee calculations.

Fidelity and Vanguard are two examples of online brokerage companies that offer solo 401k plans.

If you're self-employed, you don't necessarily have access to company-sponsored retirement plans.

However, a solo 401(k) offers nearly all the same benefits as one offered by a larger company.

Many online brokerage companies such as Fidelity and Vanguard offer solo 401k plans, which usually have low to no fees depending on your portfolio value.

You can open a solo 401(k) at most online brokers, though you'll need an employer identification number.

To establish the plan, you'll need to complete a plan adoption agreement and an account application, which your broker will provide.

You can typically make employee contributions by the end of the calendar year, but you must establish the plan by Dec. 31 if you want to make a contribution for this year.

The IRS requires an annual report on Form 5500-SF if your 401(k) plan has $250,000 or more in assets at the end of a given year.

Defined Benefit and Cash Balance Plans can be a great tax-advantaged retirement option for self-employed individuals with a large amount of income.

These plans are more similar to pensions than 401ks and can allow for a lot of pre-tax contributions, reducing taxable income.

They have a lot more regulation and requirements than a solo 401k, making them complicated and expensive to maintain.

A defined benefit or cash balance plan is not a DIY endeavor, requiring professional management and oversight.

If you cap out solo 401k contribution limits, these plans can be worth exploring due to the large amount of money you can likely put in pre-tax.