Anyone using Vanguard Individual Solo 401K?

[fr4nc0]

I'm considering opening a Vanguard Individual Solo 401K for my spouse since we have IRAs at Vanguard as well. Could anyone here using Vanguard's individual 401K give feedback on pros and cons going with Vanguard?

I've already learned the following:

Cons:
* Can't roll IRA into Vanguard Individual 401K (Not a big deal to us. When we're ready to retire, we'll close the 401K and roll it into an IRA)
* Can't get a loan from the Individual 401K (We have good cash reserves to handle financial emergencies)
* No stocks or ETFs (Mutual funds are perfectly fine)
* $20 fee per fund if total aggregate accounts at Vanguard is less than $50k (Spouse account total should hit $50k this year)
* Individual 401K is a separate employer account (not sure if its possible that Vanguard can allow me manage spouse's account through my own account like I already do with IRAs)

Are there any other downsides to having a Vanguard individual 401K? For those with a Vanguard account, would you recommend it or are you planning to move your account? Thanks.

[datrumole]

i have one for the spouse as well (real estate agent)

i'm very new to all of this in general, but your assessment thus far seems fair and accurate

of the others i found, i'm fine with the 20/fund annual fee as i suspect most will hit the 50k quickly. most others had load fees on mutual funds anyway

i did pick it due to her already having an IRA there however disappointed to see you have an entirely different interface than the trusty (and crappy) vanguard normal one sort of defeating the main reason i chose it

i dont ever see myself needing to borrow from it for investing, but i suppose at any given time if i dont like it i can move. there seems to be a number of options and growing for these types of accounts. my other leading choise was TDA

i did see 'my solo 401k'. and those seemed to have a ton more flexibility, however i'm not sure i'd ever need that, thus avoided the account setup fees

curious to see what others have to say

[Beaker12]

We just switched over to a Vanguard Solo 401k from Fidelity to take advantage of the Roth option. Initially went with Fidelity because they allow rollovers. Fortunately you can rollover another Solo 401k to Vanguard, just not a SEP account. There is a separate login to manage to account but you can trade and check balances within your main Vanguard account. They do allow someone else to be named as a trusted advisor so you can have access to the account as well.

[Tamarind]

Yes, I use one. You've correctly outlined all the major potential reasons not to.

One thing I did not expect was that my personal login somehow got conflated with the small business login in their database. I had given a business email address for the 401k and now all my Vanguard email notices go to the business account instead of my personal email. It may be I did something wrong to cause this but it wasn't a problem, just a surprise.

[aristotelian]

You can assign yourself to be the plan administrator which allows you to make contributions to your spouse's account under your own credentials.

[cadreamer2015]

I use Vanguard for my i401k. I have both regular and Roth accounts, which I like. When I close my business I plan to roll the accounts into my existing IRAs. I have had no problems or unexpected issues.

[Spirit Rider]

There is one other unique downside of Vanguard's Individual 401k in addition to no rollovers allowed*. Vanguard does not allow employee eligibility restrictions.

The IRS and E-Trade, Fidelity, Schwab and TD Ameritrade all allow employee eligiblity restrictions. These include >= age 21 and one (1) year of service >= 1,000 hours. Under the SECURE ACT, this will be limited to 500 hours/year for employees with three (3) years of service starting in 2024.

Why does this matter you might ask. With a Vanguard Individual 401k, the very day you hire any employee your one-participant 401k is in non-compliance. This even applies to one of your children. Vanguard's plan will not allow you to hire your children in your business in the future if you so desire.

Even though I have a Fidelity Self-employed 401k plan, to me the best choice is E-Trade. They allow rollovers, employee eligibility restrictions and in-plan Roth rollovers (IRRs).

*A change from a one-participant plan provider to another does not involve a rollover. You are doing a trustee to trustee transfer of assets within the exact same 401k plan.

[ICMoney]

I moved from Vanguard to Employee Fiduciary so I could get a solo 401k that allowed for mega backdoor Roth. Not sure if this matters to you but Vanguard can't do it. My experience in changing 401k vendor from Vanguard to EF was not great, Vanguard reps were clueless about how to do it and tried to terminate my plan which is a huge no-no. Luckily I am familiar with 401k administration due to my work so could stop the termination, but I wonder how many customers would have just gone along with what multiple Vanguard call reps told me I needed to do. For that reason alone I would hesitate to go with Vanguard.

Best, ICM

[fr4nc0]

There is one other unique downside of Vanguard's Individual 401k in addition to no rollovers allowed*. Vanguard does not allow employee eligibility restrictions.

The IRS and E-Trade, Fidelity, Schwab and TD Ameritrade all allow employee eligiblity restrictions. These include >= age 21 and one (1) year of service >= 1,000 hours. Under the SECURE ACT, this will be limited to 500 hours/year for employees with three (3) years of service starting in 2024.

Why does this matter you might ask. With a Vanguard Individual 401k, the very day you hire any employee your one-participant 401k is in non-compliance. This even applies to one of your children. Vanguard's plan will not allow you to hire your children in your business in the future if you so desire.

Even though I have a Fidelity Self-employed 401k plan, to me the best choice is E-Trade. They allow rollovers, employee eligibility restrictions and in-plan Roth rollovers (IRRs).

*A change from a one-participant plan provider to another does not involve a rollover. You are doing a trustee to trustee transfer of assets within the exact same 401k plan.

Thanks to everyone replying. I've been busy and haven't had the time to dedicate to responding.

As far as Etrade, I'm not very impressed. I opened an individual account to check out their platform. I had an old employee stock plan account that closed over 10 years ago. So their system insists on using the original account profile. After the account finished opening their site kept telling me my account is closed and need to open a new account. Maybe its a weekend issue that will resolve its self on Monday. Then to setup money transfer from external account the site insisted on validating my mobile phone account name matches name on investment account. Even though I'm with Verizon it kept failing. There's no way around it to just use micro-transactions to validate an account. When I called customer support I waited on hold for 15 minutes and gave up.

Spirit Rider, since you did mention the issue of employees, that did raise some questions I'm not sure if you can answer. Are nannies and baby sitters considered employees? IRS's website doesn't really classify a specific job title. They only gave general guidelines. Is the designation of an "employee" purely on hours worked and not on whether they're w2 or 1099 based on the new law?

[Spirit Rider]

Nannies and babysitters are classified as W-2 household help or 1099-NEC independent contractors by where they provide the services (your home, their home or elsewhere) and whether they provide the services exclusively to you or offer their services as a business to the community.

In the large majority of circumstances they should be properly classified as W-2 household help. The keyword is household. They have nothing to do with your business and are not eligible employees of the business that would interfere with a one-participant 401k.

If they are the small minority of circumstances and can properly be classified as independent contractors. They can even adopt their own one-participant 401k. Not very many have the desire or financial means to do so.

[illumination]

Just for a comparison, I use Schwab for my Solo 401(k) and most of the drawbacks you mentioned for Vanguard aren't there. Free trades and I can hold essentially anything: ETFs, stocks and mutual funds. It's also all available on a my same login for personal accounts. I was able to do a transfer from a SEP-IRA to a 401(k) very easily, so it sounds like it has more flexibility in that regard as well.

Most of my 401k funds are Vanguard ETFs, but I also use some of Schwab's own mutual funds and they actually have lower expenses.

My big gripe with Schwab though is they don't have a Roth 401k option unless you craft something custom (which I may do, still not understanding all the mechanics) When looking to move to E-Trade for this very feature I was not impressed and got all sorts of contradictory (and just plain wrong) guidance.

[AB609]

I use them for my account and don't have any complaints. They were helpful when I mistakenly mixed up the employer/employee contribution one time and had to have it corrected to avoid going over the limit for employee contributions for the year. They corrected it with a minimum of drama.

[MP123]

Cons:
* Can't roll IRA into Vanguard Individual 401K (Not a big deal to us. When we're ready to retire, we'll close the 401K and roll it into an IRA)
* Can't get a loan from the Individual 401K (We have good cash reserves to handle financial emergencies)
* No stocks or ETFs (Mutual funds are perfectly fine)
* $20 fee per fund if total aggregate accounts at Vanguard is less than $50k (Spouse account total should hit $50k this year)
* Individual 401K is a separate employer account (not sure if its possible that Vanguard can allow me manage spouse's account through my own account like I already do with IRAs)

Given those cons why are you still considering Vanguard for the solo 401k? What (if anything) are the "Pros"?

I've been happy with Schwab for solo 401k, and Fidelity also seems to be well regarded. Vanguard usually is at the bottom of the list for solo 401k custodians around here at least. That's not a reflection on their funds or ETFs, their i401k plans just aren't as good as others.

[fr4nc0]

Nannies and babysitters are classified as W-2 household help or 1099-NEC independent contractors by where they provide the services (your home, their home or elsewhere) and whether they provide the services exclusively to you or offer their services as a business to the community.

In the large majority of circumstances they should be properly classified as W-2 household help. The keyword is household. They have nothing to do with your business and are not eligible employees of the business that would interfere with a one-participant 401k.

If they are the small minority of circumstances and can properly be classified as independent contractors. They can even adopt their own one-participant 401k. Not very many have the desire or financial means to do so.

Thanks Spirit Rider. That clarifies a lot. I was concerned since we're married filing jointly with spouse's real estate 1099 on the same tax form it would cause issues with the IRS.

Since its getting close to end of year and broker customer services has been inundated with support calls you think its ok to open multiple solo 401ks, one at each broker? Who ever gets it done with the least amount of fuss should be good. Or do you think the IRS will raise an issue with multiple accounts open? We only intend to contribute to one account.

[fr4nc0]

I use them for my account and don't have any complaints. They were helpful when I mistakenly mixed up the employer/employee contribution one time and had to have it corrected to avoid going over the limit for employee contributions for the year. They corrected it with a minimum of drama.

I think the benefit of Vanguard is they have very few fees. They don't have any fees to close or transfer out an account. They also don't charge for recharacterization. E*Trade definitely charges for that. This year has been a customer service mess for many brokers. But since most clients of Vanguard are buy and hold its been much quicker to get in touch with a Vanguard rep.

[fr4nc0]

Cons:
* Can't roll IRA into Vanguard Individual 401K (Not a big deal to us. When we're ready to retire, we'll close the 401K and roll it into an IRA)
* Can't get a loan from the Individual 401K (We have good cash reserves to handle financial emergencies)
* No stocks or ETFs (Mutual funds are perfectly fine)
* $20 fee per fund if total aggregate accounts at Vanguard is less than $50k (Spouse account total should hit $50k this year)
* Individual 401K is a separate employer account (not sure if its possible that Vanguard can allow me manage spouse's account through my own account like I already do with IRAs)

Given those cons why are you still considering Vanguard for the solo 401k? What (if anything) are the "Pros"?

I've been happy with Schwab for solo 401k, and Fidelity also seems to be well regarded. Vanguard usually is at the bottom of the list for solo 401k custodians around here at least. That's not a reflection on their funds or ETFs, their i401k plans just aren't as good as others.

The cons are not really cons as they're explained in the parenthesis. Fidelity is definitely another possibility as their fractional shares feature turns Vanguard's ETF into mutual funds without the the cash drag of only buying full shares.

[keystone]

I have a Vanguard Solo 401K and it works for me as a sole proprietor. I keep it simple, investing 100% in Vanguard Lifestrategy Moderate Growth. No issues or complaints from my perspective, it's low cost and since I'm already mostly invested at Vanguard, it was a logical choice for me.

[illumination]

I use them for my account and don't have any complaints. They were helpful when I mistakenly mixed up the employer/employee contribution one time and had to have it corrected to avoid going over the limit for employee contributions for the year. They corrected it with a minimum of drama.

I think the benefit of Vanguard is they have very few fees. They don't have any fees to close or transfer out an account. They also don't charge for recharacterization. E*Trade definitely charges for that. This year has been a customer service mess for many brokers. But since most clients of Vanguard are buy and hold its been much quicker to get in touch with a Vanguard rep.

Use who you like best, but just know I don't get charged any of those types of fees with Schwab or Fidelity. It honestly sounds to me like there's more fees at Vanguard, for example charging $20 per fund if the account balance is under $50k. There are no fees like that with my Schwab Solo 401k. Free trades, zero monthly fees, no minimum account balance.

[Charon]

Yes, we use them. No complaints. Like AB609, we found them helpful when we mixed up employer and employee contributions (being new to the solo 401(k) idea). No fees and no problems, and since we have other accounts with them it's easy to keep track of everything. Sounds like you understand the pros and cons well, and perhaps are overthinking this if there are no deal-breaker cons.

[Charon]

It honestly sounds to me like there's more fees at Vanguard, for example charging $20 per fund if the account balance is under $50k.

Not account balance - balance on all personal accounts. So if you already have your IRA or a taxable account with Vanguard, it's not hard to avoid the fees. (But if all your stuff is already at, say, Fidelity, then yeah probably open the solo 401(k) there to...)

I assume Schwab makes money somehow, so you may want to figure out exactly where you're paying.

[illumination]

It honestly sounds to me like there's more fees at Vanguard, for example charging $20 per fund if the account balance is under $50k.

Not account balance - balance on all personal accounts. So if you already have your IRA or a taxable account with Vanguard, it's not hard to avoid the fees. (But if all your stuff is already at, say, Fidelity, then yeah probably open the solo 401(k) there to...)

I assume Schwab makes money somehow, so you may want to figure out exactly where you're paying.

I'm not paying anything, at least not in the form of fees. They also don't have account minimums for traditional brokerage, IRA, Roth or 401k like Vanguard does.

They make money on the cash balance and selling other services.

Here's their fee disclosure:
https://www.schwab.com/small-business-r ... 401k-plans