How to Choose and Set Up a Solo 401(k) Provider for Your Small Business 

Author: Siân Killingsworth / 2 Feb 2023 / 401(k) Plan Information

A solo 401(k) is a retirement savings plan for a self-employed or sole proprietor business owner (and spouse, if applicable).  This individual 401(k) plan goes by different names, including Single(k)®, self-employed 401(k), individual 401(k), or one-participant 401(k).

A solo 401(k) plan provides all the same benefits as their larger, traditional 401(k) counterparts. It is a savings vehicle for participants to invest contributions from their paychecks. By playing both roles as both employer and employee, solo 401(k) plans allow self-employed business owners to maximize their retirement contributions. Solo business owners can then gain additional savings by deducting these 401(k) contributions, along with any plan costs, as a business expense.

How to Choose a Solo 401k Provider

Some retirement plan providers expect business owners to leap administrative hurdles that eat up a lot of time and energy. It’s important to find out how much effort setting up a 401(k) requires, and what you need to do. Look for a 401(k) plan that is simple to set up and intuitive for your employees to use.

Questions to ask:

• Is the plan’s cost affordable?
• Are there educational resources?
• Is there an online portal to easily manage the plan?

What to Consider When Choosing a Solo 401k Provider

As you’re looking for a Solo 401k provider, there are several things to keep in mind:

• Company needs. Do you need a flexible plan? Higher contribution limits? Payroll integration? Retirement education resources?
• Plan cost. The price tag should be one of the first things on your list when deciding which provider to choose because it can make a big difference in how much money ends up in your pocket at the end of each year. Flat fees tend to save you far more money over time than a percentage-based fee that charges you based on the amount of money in your savings.
• Level of support available. Are you able to manage your retirement administration on your own? Do you need a provider that offers record keeping?

What Makes a Great Solo 401k Provider?

You want a provider that offers the following:

• Low, flat fees. The lower your fees, the more of your money will go into investments and be available for retirement.
• Excellent customer service. You’ll need this if you have questions about setting up or changing plans, or if there’s an issue with your accounts.
• A variety of investment options. Look for a provider that offers you choices from turnkey, pre-designed investment portfolios to a variety of stocks, bonds, mutual funds, ETFs, and more for those who prefer a self-directed investment.
• Flexibility in plan design: Your business will not stay the same over the years and your retirement plan should be able to adapt. If you want to add employees, change provisions, or make other changes, those options must be available.

How to Set Up Your Solo 401k

Setting up a solo 401k doesn’t have to be a confusing process. With Ubiquity, it’s easy to get started. Here are some tips for choosing and setting up your Solo 401k:

• Use a tax credit calculator to see how the government’s credits can help pay for your plan fees
• Use a salary paycheck calculator to determine how much you can afford to save from each paycheck

When it comes to small business 401(k) plans, due diligence requires that you compare various plans and determine the best ones for your needs. Consider providers specializing in small business retirement plans rather than those whose primary focus is insurance or payroll. Compare each aspect of the various plans carefully for a thorough understanding of service levels and costs.

Finally, don’t forget about deadlines

To establish a plan for a tax year, the business owner must sign a plan document by the last day of the business’s tax year to contribute for that year (e.g., December 31 for a calendar-year business). The document must be signed by December 31 to make contributions for that year. Plans can be opened in a prior plan year as long as it is opened by your tax filing deadline. All contributions must be made by the business’s federal income tax return due date, including extensions.

For more information about Ubiquity solo 401(k) offerings, contact us today.

 

Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.