Over 5 years ago I went on the hunt for the best solo 401k providers, did my research, and learned a whole lot. I've shared in the past the best options for saving for retirement with a side income, and I've leveraged a SEP IRA in the past.

However, as my business income has grown, a solo 401k is a better option for sheltering more money for retirement tax free today. One of the big reasons I've opted for a SEP IRA in the past is that it's very easy to setup and my income wasn't really high enough to justify a solo 401k.

Today, however, I'm willing to accept a little more paperwork to save a lot more in taxes. Even after contributing for a few years, I've actually found that there isn't that much extra paperwork - it's very similar and when you open the account at your brokerage, you can't really even tell the difference.

So, let's get started and look at the Solo 401k. I also share my comparisons of different solo 401k providers, including what you should consider for options (Roth, loans, mega-backdoor, and more).

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Why A Solo 401k

You might be asking why I'm considering a solo 401k versus a SEP IRA or other self employed retirement savings options. Well, it all comes down to circumstance and how much you can save.

Let's look at two scenarios that are similar to mine. First, in the past, I only saved in a SEP IRA because my income was lower and I was still maxing out my 401k at work, so I didn't need any additional employee contributions.

With both a SEP and Solo 401k, on $30,000 of income, the employer contribution is $5,576.11. Since I was already doing the $20,500 at my primary employer, that amount didn't make a difference.

However, fast forward to today, the business makes much more income, and my wife is now working for the business. As such, it can make a huge difference in savings and lowering our taxes. Let's assume that the business is going to make $100,000 this year. That means that the business can contribute $18,587.05 to both my 401k and my wife's 401k. Plus, my wife can contribute $20,500 of her salary to the 401k as well (since I still make my $20,500 at work).

As such, the solo 401k provides much more savings options, and lower taxes today as a result. The reason: when you are self-employed, you can make both the employer and employee contribution - up to the limits!

Related: 401k Contribution Limits

Whoa, that sounds confusing, and it can be. So let's look at the major options that you need to consider when selecting a solo 401k provider.

• Does the 401k provider offer both Roth and Traditional contributions?
• Does the 401k provider offer after-tax contributions to do a mega backdoor Roth IRA.
• Does the 401k provider offer loans from the plan?
• What types of investment options are allowed in the plan (i.e. can you invest in alternative assets like real estate, startups, or even cryptocurrency)?
• Does the provider allow rollovers into the plan and rollovers out of the plan?
• The costs to maintain the plan
• The costs to invest within the plan

Based on your wants and needs, there are a lot of things to compare when shopping for a solo 401k provider. Let's compare some of the main firms that offer solo 401ks.

When I started looking for solo 401k options, E-Trade wasn't really on my mind. I think of them as a trading brokerage, as their fees on many products are higher than I would want. However, a friend of mine said good things about their solo 401k option, so I checked them out.

And honestly, I was impressed. E-Trade offers both Traditional and Roth contributions to their solo 401k. They also allow loans under their plan.

They accept rollovers of any kind into the plan.

There are no setup fees involved with setting up a solo 401k at E-Trade. Inside the 401k, you're subject to the regular commissions at E-Trade, which is currently $0 per trade. However, they do also offer a large amount of no-fee mutual funds.

Note: We're hearing reports from readers the E*Trade has made it difficult to make contributions to your account. Read the comments below and assess if that impacts your situation.

TD Ameritrade Solo 401k

TD Ameritrade is another low cost brokerage that offers a prototype free solo 401k plan. Their plan is the hardest to dissect, however, after discussing their plan with them, here is what we found.

The TD Ameritrade solo 401k plan only allows traditional contributions after July 2022 (this is due to the Schwab-TD Ameritrade merger. Schwab only allows traditional contributions, and it appears that TD Ameritrade will be using the same plan going forward).

As such, TD Ameritrade will also discontinue allowing loans from their solo 401k, and existing loans will need to be repaid.

Looking at their plan document, they only allow rollovers from 401(a), 401(k), 403(a), 403(b), 408, and 457(b) accounts.

They also offer a lot of investment choices within their 401k plan. For example, they offer Vanguard ETFs commission free.

There are no setup fees or annual account fees with TD Ameritrade's plan. All regular trades within the 401k are subject to their standard commission which is $0 per stock, ETF, and option trade. However, even beyond the Vanguard ETFs, they offer other ETFs commission free as well.

Note: If you currently have a plan with TD Ameritrade, and you have a Roth Solo 401k, you're going to need to rollover your plan to another provider by July 2022 (unless Schwab/TD make changes). This is a little bit of a hassle, but very do-able. It could also be a good time to consider using a third-party firm to setup a non-prototype plan and give you more options for investing.

Fidelity has been my go-to investment brokerage for years because they offer a wide variety of products and services at very low prices. In fact, it's where I manage all of my investments today.

So I was disappointed to learn that Fidelity doesn't offer a full service solo 401k option. Their current "free" solo 401k doesn't offer a Roth contribution option, and it doesn't offer 401k loans. Speaking to their representative, they told me this was to save costs on maintaining the plan since they don't charge to setup a solo 401k.

However, because it is Fidelity, they do offer a full range of investment options, from commission free ETFs, to mutual funds, stocks, bonds, and more.

Fidelity also offers rollovers into the plan, which can be a great strategy for doing a backdoor Roth IRA. However, they don't allow in-service distributions from the plan. Only E*Trade potentially offers this.

The Fidelity solo 401k is cheap. There are no setup fees or annual maintenance fees. And trading within the Fidelity solo 401k is the standard $0 commission for stocks, ETFs, and options. That's why we believe Fidelity is one of the best free investing brokers for long term investors.

Note: A big drawback with Fidelity is that you have to mail in a check for your contributions...seriously?!?! But you can do Zelle into your plan...

Learn more about Fidelity in our Fidelity Brokerage Review.

Vanguard Solo 401k

Vanguard is one of the most popular solo 401k options because Vanguard has always been synonymous with low fees. As such, I expected them to be a very low cost provider.

Vanguard does offer Traditional and Roth options for their solo 401k, and they just started allowing rollovers of existing IRAs into the Solo 401k plan. However, they still don't allow loans from their plan.

Vanguard only allows participants in their solo 401k to invest in Vanguard mutual funds (not even Vanguard ETFs). This limits investment options quite a bit.

The fees on Vanguard's solo 401k were also surprising. While they don't charge a setup or annual maintenance fee, they do charge a $20 per fund per year fee for each fund you hold inside your 401k plan. That means if you hold 5 funds inside your solo 401k, you could be paying Vanguard $100 per year.

This $20 per fund per year fee is waived if you're Flagship Select or Voyager Select. This means you need to have at least $50,000 in assets with Vanguard.

A big benefit that was announced is that Vanguard is not only lowering the minimums on their Admirals Shares, but they are also making them available in their Solo 401k product. Surprising this wasn't done sooner, but if you have investors shares, and they qualify for Admirals shares, they will convert in January 2019.

Some will argue that you can potentially exceed that $50,000 level pretty quickly in a solo 401k, but I personally think it will take several years, and there are potentially better options anyway.

Learn more about Vanguard in our full review.

Charles Schwab Solo 401k

Schwab is another discount brokerage that offers a prototype solo 401k plan for free. Since Schwab is continually working to improve their image in the low-cost brokerage space, I was interested to see what they offered.

I was disappointed to learn that Schwab only offers traditional 401k contributions - they do not have a Roth option on their plan. They also do not offer loans under their plan.

It appears that you can rollover a 401k into your Schwab solo 401k, but you cannot do an IRA rollover.

Schwab does offer a lot of investing options, including Vanguard mutual funds and commission free ETFs.

There are no fees to open the solo 401k, and there are no yearly maintenance fees. Inside the 401k, traditional Schwab pricing applies - $0 per stock trade, with $0 on Schwab funds and ETFs.

Comparing The 5 Most Popular Solo 401k Providers

Now that we've covered the five major "free" solo 401k providers, let's compare them in a chart side-by-side to see how their offerings compare to each other.

Sorry, the chart doesn't display on mobile.

Notes: Vanguard's annual fees can be waived over $50,000 in assets. Also, all of these companies offer commission-free ETFs, so you could potentially invest for free within your Solo 401k. Vanguard also have a very odd pricing schedule. While they do offer their own products commission free, if you want to buy other stocks or ETFs, you'll pay anywhere from $2-$7 depending on how much in assets you have.

Now you can see why the choice of solo 401k providers is so difficult. Each firm has strengths and weaknesses, and the selection depends really on what matters to you. However, E*TRADE does stand out as having the most robust options.

And if none of these really excite you, you can always create your own solo 401k with a third party provider.

Third Party Solo 401k Providers (Non-Prototype)

If you need or want a solo 401k that is a little more robust that the free prototype plans these five brokerage firms offer, then you need to find a third party service that will create the plan documentation for you.

Some of the common reasons why you'd consider using a third-party service to create your solo 401k documentation:

• You want a choice in brokerage
• You want to invest in alternative assets such as real estate, startups, cryptocurrency, promissory notes, tax liens, precious metals, and more.
• You want checkbook control over your 401k
• None of the prototype providers matches exactly what you're looking for with options

Remember, just because you go with a third party provider also doesn't mean you can't invest at your favorite firm. For example, you can create a third party solo 401k and then have that 401k held at Fidelity. This gives you access to all of Fidelity's investment choices, but your options are created by the plan, and NOT Fidelity.

How is this possible? Your plan provider simply creates your plan documents that govern your 401k plan. You can then take those documents to your favorite broker (most choose Fidelity or Schwab), and you open a non-prototype account. These are equity-holding accounts that simply manage your equity investments. What they don't do is any of the paperwork associated with your plan. Did you withdraw from your plan? You're responsible for creating the 1099-R.

You typically work with your plan provider each year to prepare the documents for your plan, including any 1099-Rs or the 5500-EZ.

Also, you can use these plans to execute a Mega Backdoor Roth IRA. In fact, several of these companies specifically advertise that they offer it.

This isn't an exhaustive list. There are also local firms in most areas that can create 401k plan documentation as well.

Some of the most popular online providers include: