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I'm planning to open a Solo 401(k) with Schwab. There are some provisions that are decided by the Plan Administrator, which I assumed would be me (my business, technically). However, doing research, I've found that there are Third-Party Administrators, there are brokers, there are custodians....and I could be my own administrator with a Self-Directed or Prototype plan.

Needless to say, I'm a little confused.

My question: for the terms "Administrator", "Broker", and "Custodian", what are the formal definitions in the context of a 401(k) plan? What are the duties and responsibilities of each? Is there any overlap?

I believe that with some extra clarity, I can figure out what I can do myself (perhaps I can be the plan administrator if it only requires tax documentation and nothing else) and what I need to look for. (If being an administrator is a larger burden, I want to see whether Schwab will shoulder that or whether I need to find something else.)

Thank you.

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  • Tax documentation can be confusing for beginners; each 401(k) plan files annual reports to the IRS that participants know nothing about. If IRS announces new regulations, or makes clarifications etc., the 401(k) plan document must be amended to make the plan compliant with the new rules. The Pension Benefit Guaranty Commission gets into the act, as does the Department of Labor, to make sure that you, as Employer, are not gypping you, as Employee, etc. So, mutual fund companies offer Solo 401(k) plans that will do all this paperwork for you (for a fee, of course). Use them; it is a lot easier. Aug 31 '15 at 13:22
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Their paperwork should help you along. Schwab is the broker and custodian, you are the administrator.

There's virtually no paperwork after the account is opened, until you hit $250K in value, and then there's one extra IRS form you need to fill out each year.

See One-Participant 401(k) Plans for a good IRS description of form 5500.

Disclosure - I use the Schwab Solo 401(k) myself, and the only downsides, in my opinion, the don't offer a Roth flavor, and no loans are permitted. Both of these features would offer flexibility.

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  • Yes. The no-loan is an issue, but one I'm hoping to be able to resolve later on by either switching to a self-directed plan or transferring to a different custodian. The Roth thing is a bummer indeed. Aug 31 '15 at 18:37
  • Note - if you add actual definitions for the terms, I'll award the answer to you. I imagine that others stumbling across this question could benefit from having the definitions and responsibilities enumerated. (I understand that Schwab manages the account, but I'm not sure how that differs from a broker in this regard.) Aug 31 '15 at 18:39

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