Selecting the Best Solo 401(k) Provider

Selecting the best Solo 401(k) plan provider is an important decision that should be researched thoroughly.  Below are several tips to help you select the best Solo 401(k) Plan provider for your self-employed or small business retirement plan.

1. Always Make Sure You Are Working With a Tax & ERISA Professional: There are several companies on the internet that advertise themselves to be solo 401(k) plan providers and experts, however, in most cases, the people that would be involved in drafting your Solo 401(k) plan documents as well as advising you are not tax attorneys or even tax professionals. Working with an experienced tax & ERISA professionals when looking for a Solo 401(k) Plan provider is crucial in ensuring that your plan will be properly setup as well as remain in full IRS compliance. The Solo 401(k) plan is based on the rules found in the Internal Revenue Code, which can be quite complicated to the non-tax attorney. Therefore, it is strongly advisable to work with a Solo 401(k) Plan provider, like the IRA Financial Group or Bergman Law Group, to establish your IRS approved Solo 401(k) Plan. Relying on the advice of a document processor or no-tax professional when it comes to establishing and maintaining your retirement plan puts your retirement future at great risk. Too many times, plan participants have unknowingly violated IRS rules when operating their Solo 401(k) Plan because a plan provider representative that was not qualified to provide relevant tax advice gave them inaccurate and incomplete tax advice or drafted the plan documents incorrectly. Make sure this does not happen to you – work only with qualified 401(k) plan tax & ERISA professionals who have been specifically trained on the special tax aspects of the Solo 401(k) Plan to establish and maintain your Solo 401(k) Plan.

2. Open Architecture Self-Directed Solo 401(k) Plan Is the Way to Go: Not all Solo 401(k) Plans are the same.  Most Solo 401(k) Plans offered by a bank or financial institution are not self-directed.  What that means is that you will be restricted to making the investments offered by the bank or financial institution and will not be permitted to purchase real estate, precious metals, private business investments, option & currency trading, hard money loans, etc.  Once you adopt a Solo 401(k) Plan, you should have a plan that features all the IRS options available for qualified retirement plans, including the ability to make non-traditional investments, such as real estate. IRA Financial Group offers an open architecture Solo 401(k) Plan that allows you to make any IRS approved investment without requiring the consent of a custodian. As trustee of your Self-Directed Solo 401(k) Plan, you will have “checkbook control” over your plan funds and will have total control over plan assets.

3. Take Advantage of Your Right to Borrow up to $50,000 from Your Plan: Not all Solo 401(k) Plans include a loan feature, which is an IRS approved feature. IRA Financial Group’s Solo 401(k) Plan allows plan participants to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose, including paying credit card bills, mortgage payments, personal or business investments, a car, vacation, or anything else. The loan has to be paid back over a five-year period at least quarterly at a minimum prime interest rate (you have the option of selecting a higher interest rate).

4. Be Sure You Have a Roth Option: Most Solo 401(k) Plan providers do not allow for Roth (after-tax) contributions. IRA Financial Group’s Solo 401(k) Plan contains a built in Roth sub-account which can be contributed to without any income restrictions.  In addition, most Solo 401(k) plan providers do not allow for in-plan Roth conversions or rollovers.  Whereas, IRA Financial Group’s Solo 401(k) Plan allows for in-plan Roth conversions. However, the Solo 401(k) Plan participant must pay income tax on the amount converted.

5. Ongoing Tax & 401(k) Plan Support is a Must: Just because your Solo 401(k) Plan has been established does not mean that you no longer need any ongoing tax and ERISA support.  Most Solo 401(k) Plan providers are headed for the exit once the plan has been established.  As you begin administering your Solo 401(k) Plan, whether it involves making employee deferral or profit sharing contributions, making a non-traditional investment, taking a plan loan, or considering a Roth conversion, you will want to be able to have the ability to consult with a specialized 401(k) Plan tax professionals and get specialized tax and ERISA advice based on your particular retirement or tax question.  The ongoing maintenance of the Solo 401(k) Plan is crucial in making sure your Solo 401(k) Plan remains in IRS compliance and that the IRS respects all your plan contributions and investment gains. Working directly with a 401(k) plan tax professional that has been specifically trained on the special tax aspects of the Solo 401(k) Plan will help keep your Solo 401(k) plan in full IRS compliance.

6. Take Control of Your Solo 401(k) Plan from the Plan Provider: Most Solo 401(k) Plan providers will require that you hold the plan assets at their institution. With IRA Financial Group’s Self-Directed Solo 401(k) Plan, you can hold the plan assets at the bank of your choosing and gain “checkbook control” over the funds. With IRA Financial Group, making an investment is as easy as writing a check.

7. Stay Away from Plan Providers who Outsource Their Plan Maintenance Services: Most Solo 401(k) Plan providers do not assist or offer advice with respect to the maintenance and administration of a Solo 401(k) Plan, including the completion of the IRS Form 5500-EZ. They generally refer all questions to an outside tax attorney or accountant. IRA Financial Group offers all of its Solo 401(k) Plan clients direct access to its in-house retirement tax professionals and CPAs regarding maintenance or administrative questions concerning the plan. Whether it’s answering a question about a plan feature, investment, an update in the law, or with help completing the IRS Form 5500-EZ, you will work one-on-one with an IRA Financial Group retirement tax professional and CPA who are familiar with your plan and retirement goals.

8. Stay Away from Excessive Annual Fees: Sine most Solo 401(k) Plans have less the $250,000 in plan assets, there would be no annual filing requirement for the plan. Hence, why pay excessive annual administration fees to a plan provider who will not be offering you or your plan any value or services. Even if your Solo 401(k) Plan has in excess of $250,000 of plan assets, the IRS Form 5500-EZ is quite simple to complete and should not be too costly.

9. Don’t Take Tax Advice from a Salesperson - Talk Directly with a 401(k) Plan Tax Professional or CPA: Many times a salesperson or representative of a Solo 401(k) Plan provider will offer you tax or ERISA guidance with respect to a 401(k) plan feature or an investment without lacking the adequate knowledge or expertise. Make sure you are only receiving plan related advice or information from a specialized 401(k) plan tax professional. Too many times, plan participants have made improper plan contributions or invested in a prohibited transaction because they were mislead by a plan provider representative that was not qualified to provide proper tax advice regarding the unique features of the Solo 401(k) Plan. Working directly with a 401(k) plan tax professional that has been specifically trained on the special tax aspects of the Solo 401(k) Plan to establish and maintain your Solo 401(k) Plan is the only way you can guarantee your plan will remain in full IRS compliance and that you will not be engaging in any plan activities not approved by the Plan or the IRS.

To learn more about the importance of selecting the right solo 401(k) plan provider, please contact a retirement tax expert at 800-472-0646.


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