Individual 401K Advice: Vanguard or ETrade?

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SelfEmployed123
Posts: 74
Joined: Sun Apr 15, 2018 8:57 pm

Individual 401K Advice: Vanguard or ETrade?

Post by SelfEmployed123 » Sun Apr 15, 2018 9:27 pm

Hello Bogleheads,

I am in the process of researching Individual 401k plans. I've narrowed down my choice to either Vanguard or ETrade. This is due to the fact that I would like to have a Roth 401K option and rolling over an IRA is not an issue. My wife and I already have our Roth IRAs and a brokerage account with Vanguard. Our main holding is VTSAX. However, as many have stated in prior posts, the Admiral Shares are not available in the Vanguard individual 401k plan. This plan will be my main retirement account, which I eventually do plan on maxing out the contributions for. With VTSMX currently at an expense ratio of 0.15%, the investor shares will end up costing significantly more over time (just over 6 figures during the next 30 years).

I see that VTI is available for purchase through ETrade, which seems like a good ETF equivalent to VTSAX. For those of you who have ETrade, how does the DRIP work? Does it incur transaction fees when purchasing new ETF shares? Are fractional share purchases possible with a DRIP?

I prefer the overall philosophy of Vanguard. I like that it is owned by the shareholders. I would really like to go with their individual 401k to have everything in one place. However, I can't help but think about Jack Bogle's advice to minimize costs. For those who have chosen the Vanguard plan, what swayed your decision?

MoneyMarathon
Posts: 159
Joined: Sun Sep 30, 2012 3:38 am

Re: Individual 401K Advice: Vanguard or ETrade?

Post by MoneyMarathon » Sun Apr 15, 2018 10:36 pm

Admiral Shares are not available in the Vanguard individual 401k plan. This plan will be my main retirement account, which I eventually do plan on maxing out the contributions for. With VTSMX currently at an expense ratio of 0.15%, the investor shares will end up costing significantly more over time (just over 6 figures during the next 30 years).
I prefer the overall philosophy of Vanguard. I like that it is owned by the shareholders. I would really like to go with their individual 401k to have everything in one place. However, I can't help but think about Jack Bogle's advice to minimize costs. For those who have chosen the Vanguard plan, what swayed your decision?
One of the ways to "escape" the higher expense ratios of the Vanguard Roth 401k are to terminate it and roll it over into a Vanguard Roth IRA. This may effect your planning (in favor of the Vanguard Roth 401k), since you don't have to figure that you're locked into 30 years of the Roth 401k account. You're perfectly fine contributing for 1, 5, or 10 years, then terminating the plan and rolling the money over into your Vanguard Roth IRAs. It would be a little more time consuming than letting it sit, but if it's a 6 figure cost over time, maybe it's worth it.
I see that VTI is available for purchase through ETrade, which seems like a good ETF equivalent to VTSAX. For those of you who have ETrade, how does the DRIP work? Does it incur transaction fees when purchasing new ETF shares? Are fractional share purchases possible with a DRIP?
It's easy peasy. The dividends buy fractional shares in the account automatically. New money can't do this, but dividends can. Also, you can't sell fractional shares without liquidating the entire position (...but you can of course sell whole shares, without liquidating it all). At which point, the brokerage will sell the fraction (less than 1) remaining.

I think that E-Trade is the best offering if you want a Roth individual 401(k) and have more than a small amount of money, since you can get lower expense ratios that will offset the cost of trades, compared to Vanguard (which has higher expense ratios) or Fidelity and Schwab (which don't have Roth). If you think of the cost of three trades at E-trade as being roughly a $20 or $30 annual fee, it beats paying 0.1 more ER on anything more than $20k or $30k (cumulative, not just that year). E-Trade is certainly a competent brokerage, and you'll still have Vanguard managing the index funds.

billy269
Posts: 69
Joined: Mon Nov 18, 2013 2:50 pm

Re: Individual 401K Advice: Vanguard or ETrade?

Post by billy269 » Sun Apr 15, 2018 10:41 pm

MoneyMarathon wrote:
Sun Apr 15, 2018 10:36 pm
Admiral Shares are not available in the Vanguard individual 401k plan. This plan will be my main retirement account, which I eventually do plan on maxing out the contributions for. With VTSMX currently at an expense ratio of 0.15%, the investor shares will end up costing significantly more over time (just over 6 figures during the next 30 years).
I prefer the overall philosophy of Vanguard. I like that it is owned by the shareholders. I would really like to go with their individual 401k to have everything in one place. However, I can't help but think about Jack Bogle's advice to minimize costs. For those who have chosen the Vanguard plan, what swayed your decision?
One of the ways to "escape" the higher expense ratios of the Vanguard Roth 401k are to terminate it and roll it over into a Vanguard Roth IRA. This may effect your planning (in favor of the Vanguard Roth 401k), since you don't have to figure that you're locked into 30 years of the Roth 401k account. You're perfectly fine contributing for 1, 5, or 10 years, then terminating the plan and rolling the money over into your Vanguard Roth IRAs. It would be a little more time consuming than letting it sit, but if it's a 6 figure cost over time, maybe it's worth it.
I see that VTI is available for purchase through ETrade, which seems like a good ETF equivalent to VTSAX. For those of you who have ETrade, how does the DRIP work? Does it incur transaction fees when purchasing new ETF shares? Are fractional share purchases possible with a DRIP?
It's easy peasy. The dividends buy fractional shares in the account automatically. New money can't do this, but dividends can. Also, you can't sell fractional shares without liquidating the entire position. At which point, the brokerage will sell the fraction (less than 1) remaining.

I think that E-Trade is the best offering if you want a Roth individual 401(k) and have large-ish amounts of money, invested annually, since you can get lower expense ratios that will offset the cost of trades, compared to Vanguard (which has higher expense ratios) or Fidelity and Schwab (which don't have Roth). If you think of the cost of three trades at E-trade as being roughly a $20 or $30 annual fee, it beats paying 0.1 more ER on anything more than $20k or $30k (cumulative, not just that year). E-Trade is certainly a competent brokerage, and you'll still have Vanguard managing the index funds.
Why do you feel E-Trade's Roth i401k is superior to TD Ameritrade's?

MoneyMarathon
Posts: 159
Joined: Sun Sep 30, 2012 3:38 am

Re: Individual 401K Advice: Vanguard or ETrade?

Post by MoneyMarathon » Sun Apr 15, 2018 10:47 pm

billy269 wrote:
Sun Apr 15, 2018 10:41 pm
Why do you feel E-Trade's Roth i401k is superior to TD Ameritrade's?
Actually, I was just about to look at the options provided by TD Ameritrade. Since I haven't yet, I didn't include them in what I said. If you are familiar with their offering, please share that info here.

SelfEmployed123
Posts: 74
Joined: Sun Apr 15, 2018 8:57 pm

Re: Individual 401K Advice: Vanguard or ETrade?

Post by SelfEmployed123 » Mon Apr 16, 2018 4:56 am

Thank you so much! Just a few follow up questions:
It's easy peasy. The dividends buy fractional shares in the account automatically. New money can't do this, but dividends can. Also, you can't sell fractional shares without liquidating the entire position. At which point, the brokerage will sell the fraction (less than 1) remaining.
With E-trade is there a commission fee/transaction fee for automatic reinvestment of dividends with ETFs?
Why do you feel E-Trade's Roth i401k is superior to TD Ameritrade's?
I had also considered TD Ameritrade before deciding E-Trade would be a better way to go. According to prior posts (see viewtopic.php?t=230074), Vanguard ETFs are no longer commission free. That seems to have been a big selling point for TD Ameritrade in the past that no longer applies. As far investment options, I can't find any substantive differences between TD Ameritrade and E-Trade. Each may be offering different no commission ETFs/Mutual Funds, but those offerings seem to be short term and this is a much more long term decision. I'm not too concerned about commission fees. I'll be buying quarterly and have no plans to sell for decades. Also, according to this review https://thecollegeinvestor.com/18174/co ... k-options/ E-Trade allows you to set up a solo 401k with in-service distributions, which TD Ameritrade does not seem to offer. For those who have chosen TD Ameritrade over E-trade, what swayed your decision? Are there benefits to TD Ameritrade that I am missing?
One of the ways to "escape" the higher expense ratios of the Vanguard Roth 401k are to terminate it and roll it over into a Vanguard Roth IRA. This may effect your planning (in favor of the Vanguard Roth 401k), since you don't have to figure that you're locked into 30 years of the Roth 401k account. You're perfectly fine contributing for 1, 5, or 10 years, then terminating the plan and rolling the money over into your Vanguard Roth IRAs. It would be a little more time consuming than letting it sit, but if it's a 6 figure cost over time, maybe it's worth it.
This is not something I had considered. This seems administratively like a hassle. Also, my thought was if I can get basically the same investment as an ETF through a brokerage like E-trade, there would be no need to do this. I may be wrong but it seems like in-service distributions, which are permitted by E-Trade, may be another way to accomplish the same goal. Another drawback to going with Vanguard and then terminating the solo 401k in 10-15 years is I would still need more than a Roth IRA somewhere. I'm 35 currently. 10 years from now I won't have a house to pay off, so I will be hitting the maximum solo 401k contribution limit every year, which increases even further after age 50. You just can't beat the contribution limits for the solo 401k. It's amazing. For sole proprietors, the wealth building potential of the individual 401k is unparalleled.

livesoft
Posts: 61364
Joined: Thu Mar 01, 2007 8:00 pm

Re: Individual 401K Advice: Vanguard or ETrade?

Post by livesoft » Mon Apr 16, 2018 8:06 am

SelfEmployed123 wrote:
Mon Apr 16, 2018 4:56 am
For those who have chosen TD Ameritrade over E-trade, what swayed your decision? Are there benefits to TD Ameritrade that I am missing?
The sways for me:

1. I already had several accounts at TDAmeritrade. We've been clients for 24 years.

2. They have a very local office which I go into about once a year.

3. They gave me a bonus to roll my old 401(k) into it.

4. At the time, they did have no-commission Vanguard ETFs, but I have learned to use the SPDR ETFs, plus TDAmeritrade gives out free trades whenever I have asked them. I have used my recent free trades to sell some Vanguard ETFs. I still hold some other Vanguard ETFs and will ask for more free trades if I ever want to sell them.

5. I think TDAmeritrade has better tracking of cash, check depositing, ACH handling ... at least from what I read at Bogleheads.org about E*Trade.

6. I will never need to do an in-service distribution, so this was of no concern to me.

7. Clearly, you should be able to see that E*Trade would have been a new financial institution for me with things to learn and hassles to overcome. I already have accounts at a few places, so E*Trade was never in consideration for me. Think about that: If you are not going to have other accounts at E*Trade, then you should really re-think any reason to use their solo 401(k) product.
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billy269
Posts: 69
Joined: Mon Nov 18, 2013 2:50 pm

Re: Individual 401K Advice: Vanguard or ETrade?

Post by billy269 » Mon Apr 16, 2018 1:52 pm

livesoft wrote:
Mon Apr 16, 2018 8:06 am
SelfEmployed123 wrote:
Mon Apr 16, 2018 4:56 am
For those who have chosen TD Ameritrade over E-trade, what swayed your decision? Are there benefits to TD Ameritrade that I am missing?
The sways for me:

1. I already had several accounts at TDAmeritrade. We've been clients for 24 years.

2. They have a very local office which I go into about once a year.

3. They gave me a bonus to roll my old 401(k) into it.

4. At the time, they did have no-commission Vanguard ETFs, but I have learned to use the SPDR ETFs, plus TDAmeritrade gives out free trades whenever I have asked them. I have used my recent free trades to sell some Vanguard ETFs. I still hold some other Vanguard ETFs and will ask for more free trades if I ever want to sell them.

5. I think TDAmeritrade has better tracking of cash, check depositing, ACH handling ... at least from what I read at Bogleheads.org about E*Trade.

6. I will never need to do an in-service distribution, so this was of no concern to me.

7. Clearly, you should be able to see that E*Trade would have been a new financial institution for me with things to learn and hassles to overcome. I already have accounts at a few places, so E*Trade was never in consideration for me. Think about that: If you are not going to have other accounts at E*Trade, then you should really re-think any reason to use their solo 401(k) product.
The main perk I see with using E-Trade is that they apparently allow IRRs (in plan Roth conversions) and TDA doesn't seem to. Livesoft has previously stated that E-trade and TDA use the same investment document, so I don't understand why TDA doesn't also allow IRRs.

I am still debating which one to go with. I like TDA better and have other accounts with them, but I would really like the option to do Roth conversions in the future before I retire from my i401k job (otherwise, if I quit my sole proprietorship before retiring, I would just roll the i401k over to my IRA and then do a Roth IRA rollover).

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