The Individual 401k has great potential as a financial tool. Its many features, such as high contribution limits, virtually unlimited investment capabilities, checkbook control, and loan feature make it an attractive choice for those who qualify.
Not all providers offer the full range of features with their Individual 401k plan, however. Providers vary in their plan’s features, management, and fees.
In choosing a provider, it is important to find out what type of plan is being offered. Individual 401k providers fall into three categories:
Self-directed custodians and trust companies
This provider offers an Individual 401k plan that allows alternative investments, such as real estate, private businesses and precious metals. While this plan offers a wider range of investment capabilities, the power to make the investments belongs to the custodian and trust company. The owner’s retirement funds are at the mercy of the company and its decisions. Any potential investment opportunities must be submitted for approval by the company, and is thus subject to various forms of paperwork and delays.
This type of provider typically charges a range of fees, from set-up to holding. These can range from several hundred to over a thousand dollars.
Banks and brokerage firms
Banks and brokerage firms also offer an Individual 401k plan. Their plan focuses on traditional investments such as stocks, mutual funds, and bonds. Investments are usually limited to the products offered by their company. This provider does not offer the loan feature or Roth sub-account with their plan. Typically there are hidden fees with this provider, based on the net asset value of the fund.
Self-directed Individual k or Solo 401k administrator
This provider serves as a facilitator who sets up a self-directed Solo 401k on behalf of the plan owner. The provider sets up the plan and then names the plan owner as the trustee and administrator of the plan. The owner has full control over the investments of the plan and can make investments with the speed and simplicity of writing a check. As trustee of the plan, the participant can take full advantage of the virtually unlimited investment capability of the plan. The plan allows both traditional and non-traditional investments in almost any class, from real estate to precious metals.
Sense Financial Services offers the truly self-directed Solo 401k plan with its full range of features such as: loan feature of up to $50,000, high contribution limits, unlimited investment capability, and Roth sub-account. Plan participants can exercise checkbook control over their retirement funds, without the need for custodian consent.
When choosing a plan provider, it’s important to research the features available, the fees charged, and the management of the plan. Understanding one’s investment goals and objectives can help in the process of finding the best Individual 401k provider.