Having an individual k plan is a great way for self employed business owners to start saving for their retirements, and to take advantage of tax benefits and tax deductible options available to them. While having an individual k plan is a good decision, account holders will also have to choose the right plan provider. Here are a few questions to ask yourself to decide if you have the right plan provider.
1. Does your plan provider offer only their own investment products?
Often, if you have an individual k account with a bank or a brokerage firm, the plan provider will naturally try to sell you their own funds and other products. In this case, it is hard to decide if they truly believe the products are profitable investments. For unbiased recommendation, it’s best to go with an independent investment advisor. This way you will be introduced to top performing assets available on the market, without being restricted to one firm’s offerings.
2. How much are you paying in term of fees and charges?
Ask your provider up front about their fee schedule. A good plan provider will offer full service package with little to no additional fees. An account holder will usually have to look out for transaction fees, recordkeeping and administration cost, and trustee or custodian fees if any.
3. Have you considered a self-directed account?
A self-directed Solo 401k account allows you to become the trustee of your own retirement plan. Thanks to that, you will be able to access the fund via checkbook control and make investments on behalf of the fund. This is a widely popular option for self employed individuals, as it also opens up a lot of investment opportunities in non-traditional assets, such as real estate, tax liens, precious metals and private businesses. This option will also eliminate the needs to hire a custodian and any cost associated with that.
However, not all plan providers allow this option. Therefore, if you are considering becoming the trustee of the plan, make sure to go with a truly self directed individual k plan.
4. Does your plan provider offer loan option?
Although the IRS permits borrowings from Solo 401 k plans, not all plan providers are on board with this. Some plan providers do not allow individual 401k loan option at all, some will only process the loan application with a fee. Other plan providers, however, will facilitate the loan application as part of their service and without any extra charges to account holders.
Generally, loan option is a great help as you will be able to borrow money from your retirement plan tax-free and penalty free. If loan option is important to you, make sure to discuss this with your plan provider.