Hello to allI am a new incoporated business owner with the option of using an individual 401k. I had a Keough account for many years and now must use a 401k. I am a novice investor with most of my funds managed by AG Edwards. They want my business for my 401k but I feel as though the fees are a bit high for an open architect plan( 250.00 set up fee and 150.00 annual maintenance fee). $400.00 for the first year seem to be a lot. They do have a plan for 75.00 a year with no set up fee but you choose one family of funds and stay within it. I am not displeased with Edwards, I just have a feeling my money can do better else where. I am going to contribute the full 25% and give all that I can to this plan because I have a very low cost of living and really do have the money to put aside. My question is, what other options do I have for a 401k and is the AG Edwards plan not the right track to take? I am new to the fool community and would appreciate any thoughts. Thanks Jeff
Jeff, AG Edwards is a full service broker. They do good work, but fees can be high.I would suggest you contact a discount broker and especially companies like Vanguard and Fidelity. Most have similar programs at lower fees. Some have local offices but most work is done by internet or by 800 number. If you can deal with that, their plans are likely to be less costly.
... but fees can be high......Since this is a retirement account, you also need to look at how those fees could have compounded over the decades. In inflation adjusted dollars a stock portfolio might be expected to double every ten years or so if it can earn 7.2% after inflation. This means that of you are 30, then that $400 setup fee could have doubled six times by the time you are 90. That would mean that it would be worth this at the following ages;30 40040 80050 1,60060 3,20070 7,40080 14,80090 29,600and that is in current dollars! In addition using a full service broker would add more fees each year in addition to this. This could easily mean that you end up with hundreds of thousands of dollars less by the time you are in your late retirement. Keeping your investing costs low is one of the few things that you can completely control with no uncertainty. Until you get a few years salary saved up I would just go with a few low cost index funds at a discount brokerage for your retirement account in order to keep the costs low.Greg
Jeff,Thanks for posting the question. I guess I'll take a try at seeing if a Single K is the right option for you. First, how much do you wish to save each year, in dollars? You say you are willing to contribute up to 25% of pay. Are you willing to do more than this?Do you earn over $180,000 per year? No need to say how much more if so.How old are you?Is your salary consistent? Or does it vary from year to year?Do you anticipate hiring any employees in the near future.Lets use this as a starting point to determine the right Plan design, then we'll decide on the appropriate product.Bill
Your investments may be subject to commissions in addition to annual fees.Compare AG Edwards with Vanguard. www.Vanguard.combuzman
Vanguard must use a third party 401k to incorporate there products, would have to have a Schwab account etc. AG Edwards would probably not advise me with the use of Vanguard which is a reason that makes me wonder about using them for my 401k. Yes there would be fees upon the annual and set up fees. Ag Edwards uses a third administrator for the paper work so the annual fee goes to the administrator. Still undecided with what to do but do appreciate all and any advice. Jeff
What about Fidelity? I have DH's individual 401k there, and have been pleased. Their funds are very similar to Vanguard's funds, so I'd think they'd have the right variety for you. Plus the costs are much less.I don't see the need at all to pay someone like AG Edwards to set up your account or have an annual maintenance fee. I've had DH's account at Fidelity for several years, and there are no fees associated with it. At tax time [which is the summer for these accounts], they send out the annual statement with all the tax information. Once the account goes over $100k in value, you need the info they send out to fill out your tax forms, but it's really just transferring the data.I know the brokers talk about all the paperwork, but as the Plan Administrator for my DH, I can tell you there really isn't any. There's the application to set the account up initially, but you already have to do that. There's the tax paperwork they send out annually, and there's a deposit slip when I send in deposits. I don't see where any of that is worth paying several hundred dollars per year unless you think that the account will be better managed by your broker and make more than that in returns, but I'm not convinced that is the case.I've been very happy with DH's account at Fidelity. I recommend you at least look at what they offer.
Thanks for the reply. My income is fairly consistent between 80 to 100k a year. My age is 34. I have no employees. I plan on not having any in the near future. I would think I could contribute the 15,500 and then max my profit sharing at 25%. I think that is correct and please correct if I am wrong. I maxed out my keough for the past few years and have been pleased to put that money away. I hope this gives you the information you need. Thanks Bill Jeff
Your numbers are correct and for you a solo K is the best option.I think I pay Online 401K $250 per year and can maintain it through my institutional account. These guys were only option available when solo Ks first came out. The broker-dealer I use for new accounts only charges $50 so that is another reason to move on down the line.Sorry for the bad advice re: Vanguard I thought they offered solo Ks.Mea culpa,buzman
Jeff,As Buzman pointed out, the Single K is the best Plan for you given the amount you want to contribute. I think I know of a solution that will be a compromise between lower fees and using AG Edwards. You can open the Single K using your AG Edwards Advisor and ask that he use OppenheimerFunds Single K. Your AG Edwards guy can advise you on the investments, and Oppenheimer does not charge anything to set up the Plan, and only $15 per year to administer. $10 if over $50,000 in the account. Oppenheimer offers some decent allocation solutions such as their Portfolio Builder, with auto rebalancing, they also offer Lifstyle (Risk Based) and Target Maturity Funds (Lifecycle, 2020,2030, etc)My suggestion would be to consider making all, or part of the $15,500 contribution as a ROTH 401k contribution, and then do the 25% employer contribution. The only administration necessary, is when assets reach $250k in the Plan, you will need to file an IRS Form 5500EZ. Your accountant can handle that for you, but may charge for doing so. It is a very basic form, and you could probably handle it yourself.The down side to the Oppenheimer solution, is it is OppenheimerFunds only, but they have decent funds in most categories. The other downside, since there is an advisor in place, the expenses on the funds will be higher, but that is something you need to determine. If the extra cost of having an advisor is worth the extra fees. The answer depends on you and the value of services provided by the Advisor.Good luck, and hope this helps.
Hi,You might want to also look at a Solo 401(k) from T. Rowe Price.http://www.troweprice.com/smallbusinessFrom their site:* There are no commissions or plan setup costs * Choose from more than 65 no-load mutual funds * We keep our mutual fund expenses low to help you save even more * An annual $10 administrative fee is charged for each mutual fund account with a balance of less than $5,000. This fee is waived for shareholders with $50,000 or more or households with $100,000 or more in total assets at T. Rowe Price * There is a $10 closeout fee applied to an account that is closed at T. Rowe Price. The fee will be deducted automatically from the proceeds of the redemption from each mutual fund unless, at the time of redemption, the annual administrative fee for the year has been paid. The closeout fee applies regardless of the size of the mutual fund investmentsThe amount of money you're planning on contributing should easily help you overcome the $5K minimum balance to avoid the $10/year/fund fee if you stick to just a few funds.There's also a Roth option, it just requires a little more paperwork.
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