Steps to set up a solo 401k

401k accounts are retirement accounts that are set up and managed by your employer. However, if you are a freelancer or entrepreneur that runs your own business, you may want to set up a 401k just for yourself. 

Many people don’t realize they have this option, but it’s a great way to build up your savings for retirement. Setting up a solo 401k can be tricky at first – here are the basic steps to get started.

Choose a 401k provider

The first step to opening a solo 401k is choosing a provider. Many financial institutions offer solo 401ks to their customers, so they’re fairly easy to find. There are several things to take into account when choosing a 401k provider, but the most important factors are fees and investment options. 

You’ll want to make sure your provider has investment options you like, and that you have enough flexibility when putting your plan together. You should also look for a provider with low fees, as high transaction fees can really add up.

Fill out your application

Once you’ve decided on a provider, you’ll need to work with them to fill out your paperwork and get the account set up. 

You’ll need to fill out your employer kit with a plan adoption agreement for a solo 401k. These are complex and can be confusing to fill out on your own, which is why it’s so important to have a provider you trust walk you through them. 

You will also need to prepare your employee disclosures about your business to send to the IRS for tax purposes.

Open your account

Once you have all of your paperwork filled out, you can set up an account and make contributions as you see fit. Since you are both employer and employee, you can make one sum contribution instead of worrying about employer matching.

When you’re setting up a retirement account, it’s important to make sure you’re working with a reputable financial institution you can trust. 

Quest Trust Company offers an individual 401k as well as many other retirement savings options, including self-directed IRA and Roth IRA accounts. We offer truly self-directed investment options as well as fast processing times and low fees. Contact a financial expert at Quest Trust Company today to set up your account.

How does a Solo 401k Work?

Solo 401k plans are employer-sponsored retirement accounts that offer self employed individuals with no common law employees other than a spouse the opportunity to establish a Profit Sharing Plan. 

Many companies offer solo 401k accounts to their employees, but not many people understand exactly how they work. 

Here’s what you need to know about your solo 401k before you get started:

You are the Employer and Employee of the Account

Although your solo 401k is an employer plan, it allows the business owner to be the Trustee of the plan, granting them access to make fiduciary decisions.

The Trustee will work with a financial institution to set up the account, and they will determine where to hold the funds, how much you contribute to the plan, and what investment to partake in. 

Rollover of previous accounts into the Solo 401k

You may have pre-existing 401k plans or IRA’s that you may want to consolidate inside of your Solo 401k. As long as those funds are pre-tax they can be rolled into the plan.  

If you are looking for a Roth Solo 401k, you may conduct “in plan Roth conversions” to convert your pre-tax funds to Roth. 

You are not able to move Roth IRA’s or previous Roth 401k’s into your solo 401k. However, You are able to contribute to a separate Roth IRA if you have one while continuing to make contributions to your Solo 401k. 

Taxes Advantages

By Contributing to your solo 401k and possibly to another Traditional IRA, you may be eligible to receive a tax deduction. This all depends on your modified AGI (adjusted gross income) in determining if you are eligible or not. 

Keep in mind that Solo 401k accounts are retirement accounts and non-qualified distributions are subject to penalty and taxation. The Solo 401k does have an option to take a loan out but it is limited to 50% of the account balance and cannot exceed $50,000.

If you’re looking to set up a retirement account, contact the experts at Quest Trust Company today. We offer Self-Directed IRAs and Solo 401k plans for individuals looking to invest into alternative assets. Our financial experts can help you find an account that makes sense for your financial needs.

Four 401K Fees You May Not Know You’re Paying

Everyone knows they should be saving for retirement. Some are closer to their goals than others, and some may even know the difference between an IRA and a 401K, but few people know how much they are paying in fees just to have a retirement account. The fees may seem like an insignificant amount, usually ranging from 0.5% to 2%, but they can actually cause major changes in your final retirement total over a period of time. When you crunch the numbers, you may discover you’re losing out on tens of thousands, if not hundreds of thousands, of dollars by the time you want to retire. In some cases, this may cause you to work several years longer than you planned just to make up the difference. Below are a few common fees you could be paying with your 401K account and what each means.

  1. Investment fees. These fees contribute to the management of the investment. With a mutual fund, the broker needs payment for services, and the fees may even be used to cover marketing and distribution costs. Mutual funds can also include a front end load or back end load that is basically a commission to the broker for the purchase or sale of shares.

Instead of a one-time fee on the front end or back end of your investment, there is another avenue for collecting commission, and it’s through a 12b-1 fee. This fee takes a percentage of the plan’s assets annually, typically ranging from 0.25% to 1%.

    1. Administrative fees. These fees pay for mailed statements, website upkeep, and even education materials for the customer including financial advisors. Some employers will pay this fee, but sometimes the cost is spread out amongst the plan holders. Those with the most shares will pay a bit more than those with few shares. Some businesses are so small that fund companies see little value in offering them retirement plan options because the cost of managing the plan wouldn’t be worth the little returns. There are middle men, however, who bundle small companies together and present them as one group to the fund companies. In this case, you may also be paying for that “wrap fee” of bundling those plans together.
    1. Individual service fees. As the name implies, these fees are based on the activity of your personal plan. You may need to take a loan, or hardship withdrawal, from your plan during difficult financial times, or you may want to make a full withdrawal after leaving employment. These cases will often result in a flat fee depending on your specific plan. There may also be quarterly fees and a set-up fee associated with your individual plan that you should always ask about before signing up.
  1. Self-Directed brokerage fees. Sometimes companies will allow an employee to choose a plan outside of the ones they are offering, but you may face a self-directed brokerage fee in that case. Sometimes these fees can be higher than the fees associated with in-plan options, so research them before considering this option if it’s available to you.

While some fees are unavoidable, there are low fee plans out there to be aware of. While there are several factors to consider when choosing a 401K plan, fees shouldn’t be an overlooked one, especially if they will cost you big time in the end.