Different Types of Solo 401k Providers
The subject of Solo 401k has been discussed numerous times on the BiggerPockets forum, but I still see that there is a confusion between different types of Solo 401k plans that are out there so the purpose of this Blog Post is to clarify this confusion and provide investors with the simple explanation of different types Solo 401k plans (or to be more correct is to say that there are different types of Solo 401k Providers).
Not All Solo 401k Providers Are The Same
There are essentially three different types of Solo 401k providers to choose from; each one geared toward a specific type of investor.
Whether you want full control of your investments or you would prefer that somebody else handle it for you, there is a Solo 401k option for you. In order to better understand which one fits you best, we must first know the difference between the three.
Banks and Brokerage Firms
First type of Solo 401k Providers is the one offered by banks and and brokerage firms. This is a more conventional type of investing, which often focuses primarily traditional investments such as stocks, bonds and mutual funds. This type of provider will have substantial limitations to the plan documents allowing you only invest in products they offer. Here are few examples of this type of providers:
The focus of these providers is to sell you particular investments and they offer Individual 401(k) as a way to generate additional business for themselves. There are many restrictions with this type of plans. Most likely the loan options and Roth sub-account will not be available with this platform. The offer low cost Solo 401k plans, but they make money by selling you investments.
Self-Directed Custodians
Second, there is the Solo 401(k) offered by self-directed custodians and trust companies. This type of investment strategy allows the investor to put their retirement savings into an alternative investment package, such as real estate, private business, tax liens or tax deeds and more. Here are some of the self-directed custodians:
However, when choosing this type of Solo 401k, in a way you put yourself at the mercy of the company holding the investment. They typically charge a wide array of fees, ranging from account set-up, to quarterly holding fees, fees per asset and so on. In addition, all investment paperwork must be submitted to the custodian and be approved by them before any investment purchase can be finalized (or simple expense payment made for that matter).
Truly Self-Directed Solo 401k Providers
Last and certainly not least, is the Truly Self-Directed Solo 401k. The truly self-directed Solo 401(k) is an ideal fit for those looking to be in control of their retirement investing. Unlike the previous two Solo 401k providers, a self-directed Solo 401k established by the provider, offers you the chance to act on behalf of your own retirement account as the trustee of the plan. This allows you, as the investor, full control over all the private documentation pertaining to your investments and at the same time bypass any transaction and holding fees that would apply.
This type of Solo 401k Providers don’t sell you any investments and their role is simply provide and maintain your plan documents in compliance with the IRS. This type of plan is the most flexible and give you (the investor) full control over your retirement account.
Some of the plan features:
- Checkbook Control
- Roth sub-account
- Account for spouse/partner
- Virtually unlimited investment options
- Participant Loan Feature
- Cost effective administration
- and more
For detailed list of the benefits, please visit my other blog post HERE.
But even with this type of plan provider my advice is don't just jump and go with the first provider. Do your due diligence. Make sure you are dealing with seasoned and experienced provider, ask for recommendations, check out the reviews, check out if the company is listed on BBB. Google the company name, check out their profile on Yelp, Google+, etc, ask other BiggerPockets members about their experience. The reason this is important because you will need ongoing support from the experts you can rely on.
You are welcome to ask any questions you may have below in the comments section.
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