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I'm interested in creating a company and rolling my 401K into a Solo or Individual 401k so that I can have more control over my investments. From what I've seen so far, it looks like you need an "administrator" like Fidelity or E-Trade. My question is why? Can't I just be my own administrator?

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Yes, you can be your own administrator for a Solo 401k.

This is normally called a non-prototype/non-model/self-directed solo 401k plan. In a standard plan, you would just open up a an solo 401k account with one of the major providers like Fidelity, Schwab, ING, etc.. They would act as your administrator and broker. As an administrator they would handle tax documents like IRS form 5500 preparation, amending the plan to keep up to date with new laws and regulations. As the broker they would handle your investments.

In a non-prototype plan, you use a Third Party Administrator (TPA) to create/amend a plan to suit your needs. There are a number of them out there, some will create just a plan for a flat fee (recommended) and some will can create the plan and manage the account for you (custodian). If you stay away from prohibited transactions and can keep good financial records, you will likely be fine being your own administrator.

Having a Solo 401k plan has some big advantages, you can borrow from your 401k, or participate in a variety of other non-traditional investments like Real Estate, ETF's, stocks, futures, FOREX, etc. Most of these are unavailable in a standard Solo 401K from large administrator/brokers as they try to keep administrative costs low and money within their managed portfolios.

  • +1 very good wrap-up, thank you! Fixed the links for you. – littleadv Feb 12 '12 at 4:39
  • Is it true that it is possible to invest in instruments like futures from within a 401k account? Although I only have experience with programs operated by one of the "major providers" that you noted, they seem to have a consistent rule that tax-advantaged accounts like these are not marginable. – Jason R Feb 12 '12 at 19:59
  • Do I have to setup an S-Corp, or can I do this through an LLC? – adam0101 Feb 16 '12 at 17:20
  • All that is required for a solo 401k is an EIN - that can be had with just an LLC. Note that you can't always borrow from your Solo 401k - be sure to read your plan documents carefully to see whether your plan allows this or not. Some Solo 401k plans don't allow you to take a loan. – lunchmeat317 Aug 31 '15 at 12:15
  • Another important point is that you cannot necessarily take money out of your current 401k if you're still employed there. Many plans only allow you to rollover your money when you leave employment. Make sure of that before you start jumping through other hoops to set up a new plan. It's not wickedly hard, but it will be substantially annoying if it's for nothing. – user32479 Dec 18 '15 at 6:18
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Administrators have certain legal responsibilities and requirements. DOL lists some of them:

Plan Administration Fees - The day-to-day operation of a 401(k) plan involves expenses for basic administrative services -- such as plan recordkeeping, accounting, legal and trustee services -- that are necessary for administering the plan as a whole. Today, a 401(k) plan also may offer a host of additional services, such as telephone voice response systems, access to a customer service representative, educational seminars, retirement planning software, investment advice, electronic access to plan information, daily valuation and online transactions.

In some instances, the costs of administrative services will be covered by investment fees that are deducted directly from investment returns. Otherwise, if administrative costs are separately charged, they will be borne either by your employer or charged directly against the assets of the plan. When paid directly by the plan, administrative fees are either allocated among individual accounts in proportion to each account balance (i.e., participants with larger account balances pay more of the allocated expenses) or passed through as a flat fee against each participant’s account. Either way, generally the more services provided, the higher the fees.

Here's another checklist.

Administrators take care of all the legal and compliance related matters (such as sending the appropriate tax reports and forms, ensuring limits, managing the trustee accounts, accounting and bookkeeping, etc).

I'm sure you can do it on your own, given you have the required certifications and licenses. But why would you?

  • Is a broker and an administrator the same thing when it comes to Solo 401k's? – adam0101 Feb 9 '12 at 20:27
  • No, but to the best of my knowledge, all major brokers offer the service. To the best of my knowledge, however, the 401k administrator of my employer's plan is not a broker. – littleadv Feb 9 '12 at 20:33
  • OK, so if I understand you, if I want a Solo 401k I should find an administrator who may or may not be a broker. Is that right? – adam0101 Feb 9 '12 at 20:41
  • I don't suppose you would know how I would go about finding a good administrator, would you? – adam0101 Feb 9 '12 at 20:43
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    Look at Schwab for an Individual 401(k). From where you sit, it will look like an IRA or other brokerage account. (Others offer, too, I've seen all the details for Schwab) – JTP - Apologise to Monica Feb 9 '12 at 20:46
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The administrator or custodian only once a year gets a valuation of assets - that has to be in the file. Also a form 5500 has to be done for IRS annually - that's it if there's no activity! It is no big deal WAY cheaper than paying the fees Pensco wants! There is hardly anything they do!

There are the Plan documents which you get charged $220 or so every six years for an update and new documents. My advice is to start with a good custodian like Pensco - learn the ropes avoid prohibited transactions, get plan documents, then bail and Do it yourself.

Don't forget an administrator or custodian can also steal your assets or, if not your assets, other customer assets such as their cash. But courts make all clients throw in money to cover the assets of those who list cash due to Admin or Custodial fraud or theft of cas. GOOGle American Pension Services you'll see what I mean.

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IRS FORM 5500 is only required if your assets exceed $250,000. I have a Solo-401k that I plan to roll more into, and even after that, total assets will be under $250,000. The only thing that may need to be done is re-update or re-establish the plan every 6 years or so, but that in itself shouldn't be more than a few documents sent to the IRS. Not going to pay $300 for nothing, since the assets are under $250k.

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