Author Topic: Solo 401K plan feedback  (Read 1030 times)

venvis2001

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Solo 401K plan feedback
« on: August 19, 2022, 12:35:55 PM »
I read through few online articles and posts to figure out my Solo 401K starting this year. I plan to continue this for the foreseeable future (i.e. Solo 401K). Until recently I was just a W2 employee. The last two years I was able to do Mega backdoor roth rollover (roughly $25K plus rolled over in 2020 & in 2021). It looks very valuable to me! I will be able to max out my contributions for 2022 (including my expected biz income till Dec'22). This will also help add more to my wife's retirement account since she doesn't have that option with her employer. I can do profit sharing thru' our S-Corp (just me & my wife) & roll her after-tax to her Roth IRA (backdoor).

I am setting up my payroll with Surepayroll & they also offer Solo 401K setup/service. They said, they are also a Third Party Administrator (TPA; they work with Merisow). Their one time setup fee for Solo 401K is $350 and then annual $300. They recommended using their fiduciary (Mesirow) who offers a line of ETFs/Funds & charge 12.5cents per $1000 per qtr. The rep from Sure said their plan has the pre-tax, post-tax options so that I can do mega backdoor rollover. I am inclined to go with them. I can eliminate Mesirow after couple of years so that I can save on the mgmt fees moving forward.

I compared that with some of the online services like DiscountSolo401.com, mySolo401k.com, etc. - they offer just the plan documents & help you setup the Solo 401K accounts but they are not TPAs. Mega backdoor can be done thru' this setup also. They have a one time setup fee of about $400 or so & annual charge of $125/yr to help file 5500 or any such IRS filing requirements. A few people have shared (in Bogleheads forum) that they have been using that without any problems.

If I go the route of DiscountSolo401K or mysolo401K - I save about $200 per year.

Any thoughts from the experts who have done this thru' online plan providers or TPAs?

seattlecyclone

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Re: Solo 401K plan feedback
« Reply #1 on: August 19, 2022, 02:43:34 PM »
I pay $0 annually for a solo 401(k) with Vanguard, but there's no mega backdoor provision. Not sure what the options are for providers that support mega backdoor. I remember seeing a long thread on here about that in the past though.

PathtoFIRE

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Re: Solo 401K plan feedback
« Reply #2 on: August 19, 2022, 03:50:58 PM »
I don't believe that you need a TPA if you're just doing a solo401k, posting in part to hear if I'm wrong.

I used a TPA for my previous contractor employment, it was my only source of income, and I set up an S-corp, paid myself only a W2, and did a solo401k plus DB/CB plan, but my understanding was that it was the DB/CB part that really required the TPA.

I currently have a W2 job, and a 1099 sidejob, and for the latter I just set up a solo401k through E-trade this year, with no TPA; I don't plan for this account to reach the level necessitating filing 5500s, at least for the foreseeable future.

Malum Prohibitum

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Re: Solo 401K plan feedback
« Reply #3 on: August 22, 2022, 06:23:16 AM »
I pay $0 annually for a solo 401(k) with Vanguard, but there's no mega backdoor provision. Not sure what the options are for providers that support mega backdoor. I remember seeing a long thread on here about that in the past though.

How are they to deal with (customer service, etc.)?

venvis2001

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Re: Solo 401K plan feedback
« Reply #4 on: August 22, 2022, 09:48:11 AM »
I don't believe that you need a TPA if you're just doing a solo401k, posting in part to hear if I'm wrong.

I used a TPA for my previous contractor employment, it was my only source of income, and I set up an S-corp, paid myself only a W2, and did a solo401k plus DB/CB plan, but my understanding was that it was the DB/CB part that really required the TPA.

I currently have a W2 job, and a 1099 sidejob, and for the latter I just set up a solo401k through E-trade this year, with no TPA; I don't plan for this account to reach the level necessitating filing 5500s, at least for the foreseeable future.

Thanks for the reply. What is DB/CB part? If I continue this for 3 years to 4 years, I might reach $250K. I plan to max out both mine & my wifes - $67.5K for 2022 for me. I have seen some posts in Bogleheads they used just DiscountSolo401K & managed including backdoor Roth.

PathtoFIRE

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Re: Solo 401K plan feedback
« Reply #5 on: August 22, 2022, 02:17:26 PM »
Define benefit/cash balance. Basically a self-funded pension plan with significantly higher pre-tax deferral allowance, but these plans are complicated, deferrals are based on your age plus the status of the plan and it's past performance (meaning a string of good years can reduce funding limits, while a string of bad years could require even higher mandatory funding in future years to bring plan into compliance; all to say these require TPAs to monitor). I only had mine for 1.5 years before that job ended. They are touted in physician circles because of the higher limits, especially in later stages of life where many physicians find themselves who started earning late with extending training schedules and are now behind in saving. You can close them and roll them into 401ks, which is what I had to do, but I believe they are ideal to have for around 5-10 years, shorter and the cost to setup drags on performance, longer and they can get too large if you've been pouring 100-300k into them each year.

seattlecyclone

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Re: Solo 401K plan feedback
« Reply #6 on: August 23, 2022, 03:23:51 PM »
I pay $0 annually for a solo 401(k) with Vanguard, but there's no mega backdoor provision. Not sure what the options are for providers that support mega backdoor. I remember seeing a long thread on here about that in the past though.

How are they to deal with (customer service, etc.)?

They're fine. The website is kind of clunky. You can view your balances on your regular Vanguard login, but you need a separate account on a different (and old-looking) part of their site to make any contributions. IIRC the only time I ever needed to contact customer service was to reset my password one time, so not much experience with that side of things. Not needing to talk to them is ideal in my book though!

LightStache

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Re: Solo 401K plan feedback
« Reply #7 on: August 23, 2022, 08:55:36 PM »
I don't believe that you need a TPA if you're just doing a solo401k, posting in part to hear if I'm wrong.

I used a TPA for my previous contractor employment, it was my only source of income, and I set up an S-corp, paid myself only a W2, and did a solo401k plus DB/CB plan, but my understanding was that it was the DB/CB part that really required the TPA.

I currently have a W2 job, and a 1099 sidejob, and for the latter I just set up a solo401k through E-trade this year, with no TPA; I don't plan for this account to reach the level necessitating filing 5500s, at least for the foreseeable future.

Yep this is the same setup I have -- CB/DB plus Etrade Trad/Roth 401(k). I don't think you need a TPA for solo 401(k).

Etrade just stopped allowing mega backdoor Roth so that would be an issue if you wanted that feature, but the $20.5K Roth space is enough for me. It's free with access to all the low cost investments you could want. The customer service is what you'd expect from a freebie. But overall I'd recommend Etrade for a 401(k).

Archipelago

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Re: Solo 401K plan feedback
« Reply #8 on: August 23, 2022, 09:36:28 PM »
Quote
I am setting up my payroll with Surepayroll & they also offer Solo 401K setup/service. They said, they are also a Third Party Administrator (TPA; they work with Merisow). Their one time setup fee for Solo 401K is $350 and then annual $300. They recommended using their fiduciary (Mesirow) who offers a line of ETFs/Funds & charge 12.5cents per $1000 per qtr. The rep from Sure said their plan has the pre-tax, post-tax options so that I can do mega backdoor rollover. I am inclined to go with them. I can eliminate Mesirow after couple of years so that I can save on the mgmt fees moving forward.
What are the benefits of using a 401(k) service? Those fees seem high.

 I set up my own Solo 401(k) through Fidelity, it was easy, there were no fees, and it's been easy to contribute to it ever since.

LightStache

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Re: Solo 401K plan feedback
« Reply #9 on: August 24, 2022, 09:18:56 AM »
Quote
I am setting up my payroll with Surepayroll & they also offer Solo 401K setup/service. They said, they are also a Third Party Administrator (TPA; they work with Merisow). Their one time setup fee for Solo 401K is $350 and then annual $300. They recommended using their fiduciary (Mesirow) who offers a line of ETFs/Funds & charge 12.5cents per $1000 per qtr. The rep from Sure said their plan has the pre-tax, post-tax options so that I can do mega backdoor rollover. I am inclined to go with them. I can eliminate Mesirow after couple of years so that I can save on the mgmt fees moving forward.
What are the benefits of using a 401(k) service? Those fees seem high.

 I set up my own Solo 401(k) through Fidelity, it was easy, there were no fees, and it's been easy to contribute to it ever since.

I have a couple accounts with Fidelity and their customer service is way better than Etrade.

The reason I didn't open my solo 401(k) with them is because they required mailed checks for deposits and that's out of the question for me. That was a couple years ago though -- can you make deposits via ACH now?

Archipelago

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Re: Solo 401K plan feedback
« Reply #10 on: August 24, 2022, 10:02:08 AM »
Quote
I am setting up my payroll with Surepayroll & they also offer Solo 401K setup/service. They said, they are also a Third Party Administrator (TPA; they work with Merisow). Their one time setup fee for Solo 401K is $350 and then annual $300. They recommended using their fiduciary (Mesirow) who offers a line of ETFs/Funds & charge 12.5cents per $1000 per qtr. The rep from Sure said their plan has the pre-tax, post-tax options so that I can do mega backdoor rollover. I am inclined to go with them. I can eliminate Mesirow after couple of years so that I can save on the mgmt fees moving forward.
What are the benefits of using a 401(k) service? Those fees seem high.

 I set up my own Solo 401(k) through Fidelity, it was easy, there were no fees, and it's been easy to contribute to it ever since.

I have a couple accounts with Fidelity and their customer service is way better than Etrade.

The reason I didn't open my solo 401(k) with them is because they required mailed checks for deposits and that's out of the question for me. That was a couple years ago though -- can you make deposits via ACH now?

I don't believe you can make deposits via ACH now; I've always sent in checks in the mail. Not sure why that's considered a deal breaker though? Lol

The paperwork is simple, and it's 3-4 times a year? You fill this out, print, sign and send to the address along with your contribution / profit sharing check.
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/self-employed-401k-contribution-remittance.pdf

Definitely worth the 'hassle' for $2 in postage and a couple pieces of paper. No account opening fee, no annual fee, access to Fidelity's customer service, access to all of Fidelity's mutual funds, etc.

PathtoFIRE

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Re: Solo 401K plan feedback
« Reply #11 on: August 24, 2022, 12:41:01 PM »
@Archipelago @LightStache
It was definitely the case Re:Fidelity 6 months ago when I researched this. And I agree, it was a dealbreaker for me too, I also have several Fidelity accounts and would have preferred setting up there.

I get that it doesn't seem that onerous to mail in checks and paperwork to Fidelity or Vanguard, but when I considered doing that 12 times a year, and having to order checks for my separate business account (or add another step + more time of transferring to my personal account first), and then having to go back a few days later to confirm the deposit and purchase the ETFs, the hassle of 24 tasks each year plus I mail nothing else these days, so now I've got to add IRL tasks of sourcing envelopes, postage, and mailbox visits.

I can always roll it over to Fidelity at some later point too. I'll admit, one consideration that I didn't make was the possibility of adding a DB/CB plan on later should this side gig take off, I don't think E-trade is a great option for that.

LightStache

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Re: Solo 401K plan feedback
« Reply #12 on: August 24, 2022, 07:17:19 PM »
@Archipelago @LightStache
It was definitely the case Re:Fidelity 6 months ago when I researched this. And I agree, it was a dealbreaker for me too, I also have several Fidelity accounts and would have preferred setting up there.

I get that it doesn't seem that onerous to mail in checks and paperwork to Fidelity or Vanguard, but when I considered doing that 12 times a year, and having to order checks for my separate business account (or add another step + more time of transferring to my personal account first), and then having to go back a few days later to confirm the deposit and purchase the ETFs, the hassle of 24 tasks each year plus I mail nothing else these days, so now I've got to add IRL tasks of sourcing envelopes, postage, and mailbox visits.

I can always roll it over to Fidelity at some later point too. I'll admit, one consideration that I didn't make was the possibility of adding a DB/CB plan on later should this side gig take off, I don't think E-trade is a great option for that.

I have my DB/CB plan account at Etrade too. It's just a non-custodial retirement account, which was less paperwork to setup than the 401(k).

When I close these in a few years I'll roll everything into IRAs and plan to split between three institutions just so I don't have all my eggs in one basket. Fidelity will probably be in that mix because I'm pretty sure they support ACH for IRAs.

I really like Fidelity's customer service, their website, and free wire transfers. But I have doubts about a company that still requires mailing checks and docs for routine tasks. Does that lack of digitization suggest their cybersecurity is also lacking?

venvis2001

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Re: Solo 401K plan feedback
« Reply #13 on: August 25, 2022, 09:09:46 AM »
Quote
I am setting up my payroll with Surepayroll & they also offer Solo 401K setup/service. They said, they are also a Third Party Administrator (TPA; they work with Merisow). Their one time setup fee for Solo 401K is $350 and then annual $300. They recommended using their fiduciary (Mesirow) who offers a line of ETFs/Funds & charge 12.5cents per $1000 per qtr. The rep from Sure said their plan has the pre-tax, post-tax options so that I can do mega backdoor rollover. I am inclined to go with them. I can eliminate Mesirow after couple of years so that I can save on the mgmt fees moving forward.
What are the benefits of using a 401(k) service? Those fees seem high.

 I set up my own Solo 401(k) through Fidelity, it was easy, there were no fees, and it's been easy to contribute to it ever since.

My understanding is that if you setup directly with brokerages like Fidelity or E-trade, it is a simple Solo 401K account where you can contribute pre-tax only (employee & employer) into the pre-tax 401K accounts.
I do plan to make use of post- tax contribution & do a Mega Back Door into Roth IRA. The 401K services like DiscountSolo401k.com, mysolo401k.com - provide plan documents, etc. - to setup both pre-tax and post-tax accounts with such brokerages. Hence I am exploring that option. These 401K services provide annual service of providing required forms to file with IRS when you do rollover, etc. A few in Bogleheads forum suggested to have a TPA (Third Party Administrator) service also which these online service providers don't provide - the TPA service providers take care of making sure compliance, contribution $ are right, etc. Many people manage this themselves without TPA service.


Archipelago

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Re: Solo 401K plan feedback
« Reply #14 on: August 25, 2022, 12:34:36 PM »
Quote
I am setting up my payroll with Surepayroll & they also offer Solo 401K setup/service. They said, they are also a Third Party Administrator (TPA; they work with Merisow). Their one time setup fee for Solo 401K is $350 and then annual $300. They recommended using their fiduciary (Mesirow) who offers a line of ETFs/Funds & charge 12.5cents per $1000 per qtr. The rep from Sure said their plan has the pre-tax, post-tax options so that I can do mega backdoor rollover. I am inclined to go with them. I can eliminate Mesirow after couple of years so that I can save on the mgmt fees moving forward.
What are the benefits of using a 401(k) service? Those fees seem high.

 I set up my own Solo 401(k) through Fidelity, it was easy, there were no fees, and it's been easy to contribute to it ever since.

My understanding is that if you setup directly with brokerages like Fidelity or E-trade, it is a simple Solo 401K account where you can contribute pre-tax only (employee & employer) into the pre-tax 401K accounts.
I do plan to make use of post- tax contribution & do a Mega Back Door into Roth IRA. The 401K services like DiscountSolo401k.com, mysolo401k.com - provide plan documents, etc. - to setup both pre-tax and post-tax accounts with such brokerages. Hence I am exploring that option. These 401K services provide annual service of providing required forms to file with IRS when you do rollover, etc. A few in Bogleheads forum suggested to have a TPA (Third Party Administrator) service also which these online service providers don't provide - the TPA service providers take care of making sure compliance, contribution $ are right, etc. Many people manage this themselves without TPA service.

Yeah, I can definitely understand the argument to use this for a 3rd party service. If you have employees, a larger company, payroll, multiple moving parts, etc. then it probably makes sense to go with a service because your time is spent in better other ways.

But a small business like a single owner/operator who does their own taxes and such might be better off with the DIY approach.

lifeisshort123

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Re: Solo 401K plan feedback
« Reply #15 on: August 26, 2022, 04:35:29 PM »
Fidelity still does not allow ACH… it was a dealbreaker for us so we used E-Trade…

I do find it stressful to figure out the employer portion.  Also, can you underfund the employee section, but still contribute to the employer section? Or can you only fund the employer section after you contribute the individual maximum? (Currently $20,500)

In other words, could you fund $5,000 in employee portion between now and December 31, and then from January 1-April 15 fund the employer section to the amount legally permissible? Or, are you ineligible to fund the employer section in January because you did not contribute $20,500 prior to December 31?

LightStache

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Re: Solo 401K plan feedback
« Reply #16 on: August 26, 2022, 09:26:55 PM »
Fidelity still does not allow ACH… it was a dealbreaker for us so we used E-Trade…

I do find it stressful to figure out the employer portion.  Also, can you underfund the employee section, but still contribute to the employer section? Or can you only fund the employer section after you contribute the individual maximum? (Currently $20,500)

In other words, could you fund $5,000 in employee portion between now and December 31, and then from January 1-April 15 fund the employer section to the amount legally permissible? Or, are you ineligible to fund the employer section in January because you did not contribute $20,500 prior to December 31?

Except for Roth 401(k) contributions, which must be made by Dec 31, I believe you can make traditional employer and employee contributions anytime up to the corporate filing deadline (Apr 15 for sole proprietors) and they do not need to be in any specific order.

venvis2001

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Re: Solo 401K plan feedback
« Reply #17 on: August 27, 2022, 09:34:27 AM »
Fidelity still does not allow ACH… it was a dealbreaker for us so we used E-Trade…

I do find it stressful to figure out the employer portion.  Also, can you underfund the employee section, but still contribute to the employer section? Or can you only fund the employer section after you contribute the individual maximum? (Currently $20,500)

In other words, could you fund $5,000 in employee portion between now and December 31, and then from January 1-April 15 fund the employer section to the amount legally permissible? Or, are you ineligible to fund the employer section in January because you did not contribute $20,500 prior to December 31?
I plan to contribute only in Jan'23 for my 2022 yr - both to my pre-tax & to non-Roth. My pre-tax will get both employee & employer (profit sharing) contributions). That is my plan.

Except for Roth 401(k) contributions, which must be made by Dec 31, I believe you can make traditional employer and employee contributions anytime up to the corporate filing deadline (Apr 15 for sole proprietors) and they do not need to be in any specific order.