A solo 401(k) may be the best retirement account for those with a one-person small business, meaning it’s great for those with a side hustle or even a main gig. It can also work for those firms run by a married couple, making it a great way to save money for retirement.
A solo 401(k) can offer many of the same advantages of a big employer-sponsored 401(k) at an established company, such as tax-deferred or tax-free growth as well as high annual contribution limits. But the best brokers for a solo 401(k) also give you access to a wide range of investments – unlike the typical 401(k) plan – and offer low introductory and ongoing costs.
The best brokers for a solo 401(k):
- Fidelity Investments
- Charles Schwab
- Merrill Edge
- E-trade
- Vanguard
Bankrate evaluates brokers based on a number of factors including:
See AlsoMaking Year 2023 Annual Solo 401k Contributions-Pretax, Roth and Voluntary After-Tax (a.k.a. mega backdoor) - My Solo 401k FinancialSimple, Affordable 401k Plans Built for Small and Medium-Sized Businesses | ShareBuilder 401kHow a Self-Directed 401(k) or IRA WorksWhat Is The Major Difference Between A Solo 401k & Self-Directed IRA?- Cost (commissions, setup fees, account fees, etc.)
- Investment offerings
- Research and education
- Customer support
Overview: Top online brokers for a solo 401(k) in 2024
Fidelity Investments
Fidelity Investments is a great place to open a solo 401(k) because of the low costs, strong customer support and wide range of available securities – some of the most key things. You can set up a solo 401(k) quickly here, and you won’t pay a setup fee to do so. Fidelity also doesn’t charge ongoing fees for its solo 401(k) plan, and you’ll have access to stocks, ETFs, bonds, mutual funds and other securities, all with the broker’s attractive pricing: no-commission trades on stocks and ETFs, as well as thousands of no-transaction fee mutual funds. Fidelity offers a traditional solo 401(k), meaning you can contribute on a pre-tax basis. Fidelity’s reputation for customer support is another high point, so you can access responsive representatives quickly.
Costs: $0 account setup fee and $0 ongoing fee
Charles Schwab
Charles Schwab routinely performs well in Bankrate’s reviews, so it’s little surprise that it also offers the solo 401(k) and plenty of other retirement accounts, such as the SEP IRA. Schwab charges no account setup fee for its solo 401(k) as well as no ongoing fee, and you can open either the traditional pre-tax 401(k) or the after-tax Roth 401(k). A solo 401(k) at Schwab lets you invest in its range of securities, including stocks, ETFs, mutual funds, bonds and more, so you’ll avoid the constraints of typical plans. You’ll also enjoy the broker’s favorable pricing – $0 for stock, ETFs and many mutual funds. Schwab’s service is among the strongest, so if you have questions, you can be on with a knowledgeable human representative in minutes.
Costs: $0 account setup fee and $0 ongoing fee
Merrill Edge
Merrill Edge offers a solo 401(k) with some premium features as other plans, though with higher overall costs. Merrill offers pre-tax and Roth solo 401(k) accounts, providing greater flexibility for participants, and it also allows clients to take a loan from their plan. Merrill allows clients to invest in individual funds and model portfolios built by Morningstar Investment Management. But the fees can be noticeably higher here, with a fee for the business as well as for the individual. The business pays a one-time $100 setup fee and then $20 or $25 a month, depending on assets. Individuals pay a $3 monthly recordkeeping fee and then a fee of 0.52 percent of assets annually, covering customer support and custodial services, among others.
Costs: $100 setup fee, $20-$25 per month (for business); $3 per month and 0.52 percent of assets (for individuals)
E-Trade
E-Trade is another solid pick for a solo 401(k) because of the broker’s low cost, wide investment choices and ability to invest in pre-tax and Roth accounts. Like some other brokers on this list, E-Trade won’t charge you a fee to set up your solo 401(k) and it won’t charge an ongoing fee either. Those with a solo 401(k) will be able to trade stocks, ETFs, mutual funds, bonds and options, with no-commission trading on stocks, ETFs and mutual funds. You’ll also get access to both traditional and Roth versions of the plan, giving you more flexibility for your needs. Finally, a real differentiator: E-Trade allows you to take a loan from your solo 401(k) – like the large employer-backed plans – providing you extra flexibility if you need emergency funds.
Costs: $0 account setup fee and $0 ongoing fee
Vanguard
Vanguard has an excellent reputation for being an investor-first company, and you can see that in its solo 401(k) offering. Vanguard won’t hit you with any fees to set up the solo 401(k), but it will charge $20 for each fund held in the account. However, it will waive the fee if you have more than $50,000 in Vanguard assets total across Vanguard accounts. You’ll be able to contribute on a pre-tax or after-tax basis, giving you substantial flexibility with your planning. Vanguard limits your investment options to around 100 in-house mutual funds, which are among the cheapest available on the market, so you won’t be able to buy stocks, ETFs, bonds and other securities as you would at other brokers. You also will not be able to take a loan against your assets.
Costs: $0 setup fee and $20 per fund, though waivable
What is a solo 401(k)?
A solo 401(k) is a retirement account for a one-person business or a business run by a married couple. In key respects the solo 401(k) acts like the typical 401(k) plan, allowing you to save on a pre-tax basis in the traditional variant or on an after-tax basis in a Roth solo 401(k).
In the pre-tax version, you avoid taxes on contributions but will pay tax when the money comes out of the account at retirement. In contrast, with the Roth version, you pay tax on money going into the account, but it can compound tax-free and then be withdrawn tax-free in retirement.
As a business owner, you can contribute to the account as both an employee and an employer, letting you save more for retirement than you could with most company plans. For 2024, you can contribute up to $23,000 annually on an employee basis. You can also contribute on an employer basis, piling up to a grand total of $69,000 in the account between both types of contributions. Those 50 and older can stash an additional $7,500 into the account as well.
You can also save quickly in a solo 401(k) because the plan allows you to contribute up 100 percent of your earnings as an employee, up to the annual maximum contribution. Once you hit the maximum, then you can contribute on an employer basis, up to 25 percent of your firm’s earnings. This setup means the solo 401(k) compares favorably to the SEP IRA, which allows you to contribute only 25 percent of all earnings to your plan. This is one key way in which the solo 401(k) is likely to be a better account than the SEP IRA.
Even if you have a 401(k) for your main job, you can also open a solo 401(k) and contribute. Once you top out your employee contributions – either through your main job or your side gig, or a combo – you can then contribute on an employer basis with your solo 401(k). So the solo 401(k) can be a great place to invest when your main 401(k) is topped off.
That’s what makes the solo 401(k) one of the best plans for the self-employed.
