Setting up eTrade Solo 401K -- question

[jnw]

This question is for anyone else who has also setup a Solo 401k plan with etrade.

I spoke with 3 different etrade reps and they each told me three different things :

1) first rep says I should have different plan name for Traditional vs. Roth; e.g. "Jennifer Traditional 401k" and "Jennifer Roth 401k".  He also said I should have different sequence numbers for each, "001" and "002", respectively.

2) second rep says I should use the SAME plan name for BOTH traditional and Roth.. i.e. just "Jennifer 401K" for both.  He also said I should have different sequence numbers for each "001" and "002".

3) third rep says it should be same plan name for both and SAME squence number for BOTH , i.e. "001" -- since it's the same plan.

My head is spinning lol.  What did you do?  What makes the most sense?

[jacoavluha]

Is there a specific application for the solo 401k? And you are calling the number on the application?

If yes to both, then I’d be scared to moved forward with ETrade.

 I can’t answer your question. My guess is the plan should have one name. Like Jennifer 401k plan. And one sequence number. But on the application is there a box to check or something that says you want a Roth option as well?

My solo 401k at Vanguard had one plan name. And one sequence number. And both pretax and Roth options.

[COEE]

Run, don't walk, from etrade IMHO.

Their no load funds often turn into load funds.  Surprise!  What was once free is now $20 a trade!  Auto investment?  Oh well.  This has happened to me more than once there.  I'm in the process of pulling all of my funds from there.

[jacoavluha]

Interesting. I haven’t seen this. I have an account there and have been pleased recently that lots of Vanguard ETFs have been added to the trade for free list. That’s all I care about. I’d be concerned though if I couldn’t get knowledgeable reps on the phone.

[jnw]

So as long as I read the info each month on the ETF's I am interested I should be okay right?  To make sure nothing has changed.  They can't change it so there is a sell commision on ETF shares already bought right?

[jnw]

It appears that a trust is not required for the eTrade Solo 401k and you just name them as a custodian.

I asked a rep how can that be, because everything I read about solo 401k, is that it needs a trust just like the "big boy" 401k for large businesses...   Self-directed 401k need a trust...  in fact, Vanguard Roth Solo 401k application has a page which mentions the trust the money would go into along with the signature of the fiduciary.

The rep there was a provision in the 401 code that allowed the single owner self employed to not be required to have a trust, and to just name them as custodian.

I talked to a CPA today over the phone, and he too was confused as to why there was no trust with eTrade, and that it didn't make sense.

I have this app all filled out and was about to mail it out tomorrow, but I am holding off for now.. Until I can get some more answeres and feedback about etrade retirement account.   I have until December 31st to get it processed, so I have some time at least.

[jacoavluha]

You’re making this too complicated. Just complete the app.

[jnw]

You’re making this too complicated. Just complete the app.

Did you set up yours with a trust, or selected no trust and let them be custodian?

[jacoavluha]

The default option. Funds are held by “vanguard fiduciary trust company”. E*TRADE probably has a similar setup.

[jnw]

The default option. Funds are held by “vanguard fiduciary trust company”. E*TRADE probably has a similar setup.

Not that I saw on the eTrade app.  I saw that on the Vanguard app.   Two different eTrade reps told me they don't put it in a trust.

I just got off phone with someone at TD Ameritrade, my only other option.  I've been holding off on them because they didn't have commission free Vanguard ETFs.   They have about 6 or so ETF index funds under 0.05% expense ratio.. most of them being SPDR.  I don't know anything about this SPDR ETFs .. I need to look into them to see if they are suitable substitutes to VOO and VTI.

[jacoavluha]

again, you're making this too complicated. Choose the vendor that meets your needs - Roth option if desired, can accept a rollover if needed for you, has the investment choices you like - and complete the app. I would stop worrying about the trust aspect or whatever.

[DavidAnnArbor]

I prefer Fidelity because they offer total stock market index fund at a rock bottom expense ratio.
Moreover, I don't have to worry about reinvesting a dividend, the dividend is automatically reinvested, unlike with an ETF fund.

[COEE]

Interesting. I haven’t seen this. I have an account there and have been pleased recently that lots of Vanguard ETFs have been added to the trade for free list. That’s all I care about. I’d be concerned though if I couldn’t get knowledgeable reps on the phone.

So as long as I read the info each month on the ETF's I am interested I should be okay right?  To make sure nothing has changed.  They can't change it so there is a sell commision on ETF shares already bought right?

Bought SVSPX 5/3/2012 - NTF fund at the time.  Today, $19.99 per transaction.
Sold SVSPX 12/2/16
Bought NOSIX 12/5/16 - NTF fund at the time.  Today, $19.99 per transaction.
Sold NOSIX 9/11/18 - along with the $19.99 fee

I did "encourage" them to reimburse me my fee into my brokerage account with a little hard negotiation, but now there's not $19.99 dollars in my daughters ESA, which would have compounded to ~$50 by the time she goes to school.

Not the end of the world, clearly, but the fund is relatively small (only able to contribute $2k a year) so it ends up being a pretty significant portion of the total.  I'm just sick of playing their games.  I thought briefly about their NTF Schwab funds and decided I'd rather pay another $60 to close the account with them and move it to my preferred broker where I'll get the funds I want directly.

I don't know specifically if they do this on ETFs - I don't invest in ETF's.  (I'm not usually home during trading hours to make it worth my time.)  However, I wouldn't be surprised if they pull these shenanigans on their ETF's as well.  I'd love to hear someone else's experience.

You've got to remember that e-trade doesn't have any of their own funds.  Their entire business model is based on encouraging many [high] fee trades.  Whereas Fidelity, Vanguard, Schwab, etc also provide funds where they earn a expense ratio.  They won't charge you a transaction fee because they charge you a [small] fee to manage your funds in the form of an expense ratio. 

Now imagine your a single mother on a small income say $30k/year, and you were auto invested in a fund - to put $100/month away for your child's education.  You've been faithfully saving on a limited budget for 18 years.  You should have about $62k of tax free education money for your child, but you don't.  In year 3 they changed the NTF fund to a load fund and you continued to invest.  But now your investments are now only putting in $80 per month, and etrade is skimming 20%(!!!!) of your investment off the top, all because you missed one of the 300 emails you get from etrade a year.  Now her child only has about $52k of tax-free education funds.  Those fuckers stole $10k from this single mother.  $10k that is so important for those that are in this sort of situation.

This shit should be illegal, and it's probably worth a class action lawsuit if a lawyer here wants to take it on.  This doesn't even effect me much on a personal level... it's the people that end up in this hypothetical situation that I feel for.  They are backed into a corner and may not even realize it's happening.

God now I'm pissed.  You've encouraged me to go finish my paperwork to make the transaction and put this SHIT company in my rear view mirror.

[DavidAnnArbor]

Interesting. I haven’t seen this. I have an account there and have been pleased recently that lots of Vanguard ETFs have been added to the trade for free list. That’s all I care about. I’d be concerned though if I couldn’t get knowledgeable reps on the phone.

So as long as I read the info each month on the ETF's I am interested I should be okay right?  To make sure nothing has changed.  They can't change it so there is a sell commision on ETF shares already bought right?

Bought SVSPX 5/3/2012 - NTF fund at the time.  Today, $19.99 per transaction.
Sold SVSPX 12/2/16
Bought NOSIX 12/5/16 - NTF fund at the time.  Today, $19.99 per transaction.
Sold NOSIX 9/11/18 - along with the $19.99 fee

I did "encourage" them to reimburse me my fee into my brokerage account with a little hard negotiation, but now there's not $19.99 dollars in my daughters ESA, which would have compounded to ~$50 by the time she goes to school.

Not the end of the world, clearly, but the fund is relatively small (only able to contribute $2k a year) so it ends up being a pretty significant portion of the total.  I'm just sick of playing their games.  I thought briefly about their NTF Schwab funds and decided I'd rather pay another $60 to close the account with them and move it to my preferred broker where I'll get the funds I want directly.

I don't know specifically if they do this on ETFs - I don't invest in ETF's.  (I'm not usually home during trading hours to make it worth my time.)  However, I wouldn't be surprised if they pull these shenanigans on their ETF's as well.  I'd love to hear someone else's experience.

You've got to remember that e-trade doesn't have any of their own funds.  Their entire business model is based on encouraging many [high] fee trades.  Whereas Fidelity, Vanguard, Schwab, etc also provide funds where they earn a expense ratio.  They won't charge you a transaction fee because they charge you a [small] fee to manage your funds in the form of an expense ratio. 

Now imagine your a single mother on a small income say $30k/year, and you were auto invested in a fund - to put $100/month away for your child's education.  You've been faithfully saving on a limited budget for 18 years.  You should have about $62k of tax free education money for your child, but you don't.  In year 3 they changed the NTF fund to a load fund and you continued to invest.  But now your investments are now only putting in $80 per month, and etrade is skimming 20%(!!!!) of your investment off the top, all because you missed one of the 300 emails you get from etrade a year.  Now her child only has about $52k of tax-free education funds.  Those fuckers stole $10k from this single mother.  $10k that is so important for those that are in this sort of situation.

This shit should be illegal, and it's probably worth a class action lawsuit if a lawyer here wants to take it on.  This doesn't even effect me much on a personal level... it's the people that end up in this hypothetical situation that I feel for.  They are backed into a corner and may not even realize it's happening.

God now I'm pissed.  You've encouraged me to go finish my paperwork to make the transaction and put this SHIT company in my rear view mirror.

+1

[jnw]

I prefer Fidelity because they offer total stock market index fund at a rock bottom expense ratio.
Moreover, I don't have to worry about reinvesting a dividend, the dividend is automatically reinvested, unlike with an ETF fund.

I'd consider Fidelity, sounds like a great plan, but unfortunately they do not offer a Roth option for their Solo 401k.  I am going with Roth since most of my income is SSDI which isn't taxable -- actually with $8k net profit from self employment I pay no federal or state taxes, just self employment tax on that; however since earned income is so low, I get a $500 or so earned income credit. 

[jnw]

COEE,

Thank you so much for sharing all that.  I didn't know they were doing such shenanigans.  Definitely making me reconsider Solo 401k plan.   I sure wish Fidelity or Schwaab offered Solo Roth 401k option.

Too bad Vanguard doesn't allow stock & etf trades in their solo roth 401k, along with loan provision, or else I would join their plan -- I trust them more.

Starting to wonder if a self directed Roth Solo 401k might be the best option and use Vanguard as my brokerage.

[COEE]

Too bad Vanguard doesn't allow stock & etf trades in their solo roth 401k, along with loan provision, or else I would join their plan -- I trust them more.

A few rhetorical questions - that you don't have to answer, just meant to get you thinking.

If you trust them, why not use them?  Trust is a hard thing to acquire!
Why do you want to trade stocks in a retirement account?
Why do you want to trade ETF's instead of mutual funds?
Are you planning to take a loan on your 401k? 

I LOVE your plan to put money into Roth while you aren't paying any taxes.  *BIG Thumbs up!*

P.S. I filed my paperwork to leave E*trade for good.

[jacoavluha]

COEE, I would be frustrated in your situation also and may leave E*TRADE exactly as you are. However I think it’s a stretch to equate changing a fund from a no trade fee, to a trade fee fund (what you describe is not a load, but rather a trade fee), to stealing $10,000  from a single mother. I mean, it could be the opposite for someone else; their chosen investment used to incur a trade fee, but then got added to a no trade fee list. Such as Vanguard total stock market index ETF (VTI).

Further, even if you missed email notice of a trade fee change, E*TRADE is going to tell you the trade fee before you confirm the order. It’s not hidden. And if you’re not able to trade ETFs during trading hours, you can still trade them like a mutual fund. Just enter an order for “at market close” or whatever they call it.

[HAPPYINAZ]

I have found Etrade to be great.  I have used them for 15-20 years and never found them to have any "shenanigans" as described in prior comment.  They have been super easy to work with, the software platform is excellent and the fees have always gone down over time.  Now they even offer commission free trading of very low expense ratio ETFs (0.03%).  When you make a trade order, for either an individual stock or a commission free ETF, it shows exactly what fee will be incurred (0 for commission free, or whatever fee (usually $6.95, although mine are $4.95) for individual stock or other mutual fund). 

The application is a little complicated, but doable.  Just fill it out to the best of your ability and email it back and ask them to review it.  If something is wrong, they will ask you to change it and resubmit.  I only opened a traditional solo401K since I wanted the deductions in the current tax year, so I didn't have to worry about what names to use for each acct.  In reviewing the application though it would appear you need to first open a traditional solo401K and then perhaps do a separate application for the Roth.  According to the form, the IRS requires you to open a traditional solo401K before opening a Roth solo401K.  I thought I remembered that there was a section that said you could open both at the same time, but I can't find that info now. 

On my application, in section 8, it had all the questions related to a Trust (which you asked about).

[jnw]

Too bad Vanguard doesn't allow stock & etf trades in their solo roth 401k, along with loan provision, or else I would join their plan -- I trust them more.

A few rhetorical questions - that you don't have to answer, just meant to get you thinking.

If you trust them, why not use them?  Trust is a hard thing to acquire!
Why do you want to trade stocks in a retirement account?
Why do you want to trade ETF's instead of mutual funds?
Are you planning to take a loan on your 401k? 

I LOVE your plan to put money into Roth while you aren't paying any taxes.  *BIG Thumbs up!*

P.S. I filed my paperwork to leave E*trade for good.

Their retirement investment funds have more than three times high expense ratio than their comparable ETF and Admiral Shares Mutual fund.  They don't offer access to Admiral shares.

The loan feature is quite big.  Because if there is ever a big emergency you get 5 years to pay all of it back at around prime + 2%.  Where all the interest goes back into the account.  So even though you borrowed the money you get to put it all back.  Unlike a distribution.

Why not trade stocks in retirement account? I believe you can buy certain stocks at certain times at bargain prices. 

[HAPPYINAZ]

Don't forget Etrade offers some generous bonuses if you open an account.  Usually you can get several hundred dollars plus free trades for 60 days.  So then you could even buy individual stocks for free. 

[letired]

One of my former jobs used ETRADE for their SIMPLE IRAs. Getting the account set up was a giant pain involving a lot of phone calls and getting the direct phone number of a support spcialist, but afterward, it all seemed to work out ok. Fingers crossed you can work it out!