It is a common belief that small business 401k’s are expensive and that belief is not unfounded. A recent report from BrightScope pointed out that smaller 401k plans can be much more expensive. The average fee for a small business 401k plan is between 1.5 to 2 percent a year. Many small businesses are paying more than 2 percent. This is almost doubling the fees of larger plans, typically less than 1 percent on average.
Why do small businesses have to pay much higher fees for the same investment funds? The differences lay in administrative costs and fees to prepare legal documents. Larger businesses have the economies of scales, whereas small business 401k plan participants have to shoulder the burden.
However, small businesses can always shop around and review the fee structures of their investments. It is recommended to do so. For small businesses without full time employee aside from the owner and the spouse, there is also another solution: the Solo 401k plan for small businesses.
There are truly self directed Solo 401k plan available, which gives the plan owners the ability to act as the trustee and administrator of the plan. As the plan administrator, plan participants are in charge of keeping record of their investments and account activities, eliminating associated fees. As the plan is designed for individuals, administrative effort is also kept to a minimum. There is no tax filing required for plan with assets under $250,000. For the rest, only a short form 5500EZ is required.
The main advantages to the self directed Solo 401k for small business is that plan participants have the ability to direct their investments. This means they can shop for mutual funds with the lowest costs and fees. They can even invest their savings beyond the money market, into alternative assets such as real estate, precious metals, private businesses and more.
As the plan trustee and plan administrator, small business owners are also allowed to execute transactions on their own and bypass any transaction fees typically charged by custodian.
Sense Financial is California's leading provider of retirement accounts with "Checkbook Control": the Solo 401k and the Checkbook IRA. Over the years, they have assisted hundreds of clients to obtain checkbook control over their retirement accounts while providing them with the ability to invest in virtually any investment class, including real estate, private lending, mortgage notes and much more without the need for custodian approval.
To learn more about Solo 401k, please visit sensefinancial.com.
