The Vanguard Individual 401(k) is a prototype solo 401k plan that comes with no set up fees, and you only pay for fund expenses. It offers limited investment options, but you can contribute both to traditional and Roth accounts, and if you have a balance of over $50,000 in your account, the fund fees are waived.
Here’s everything you need to know about the Vanguard Solo 401k plan.
Table of Contents
|Cost||Free to set up.|
$20 fee per fund per year (waived if account balance is over $50,000)
|Contribution limit||$61,000 for 2022, $66,000 for 2023|
|Catch-up contributions (if age 50+)||$6,500 for 2022, $7,500 for 2023|
|Investment options||Only Vanguard mutual funds|
|Invest in individual stocks||No|
|Invest in ETFs||No|
|Invest in alternative assets||No|
|Invest in crypto||No|
The Vanguard Solo 401k is technically a “free” solo 401k plan. There are no costs to set up your account, but you’ll have to pay $20 per fund that you invest in, on an annual basis. If your account balance is over $50,000, the fund expenses are waived.
If you don’t have over $50,000 in your account, the Vanguard Solo 401k can get quite expensive if you’re investing in a large number of funds. For example, if you invest in 15 funds per year, that’s $300/year in fund fees.
There are no minimum initial investments required to open or maintain your account, but most funds require a minimum investment of $1,000.
Contribution limits and Roth
You can contribute up to $61,000 for 2022 and $66,000 for 2023. If you’re at least 50 years of age, you can contribute an additional $6,500 for 2022 and an additional $7,500 for 2023.
The Vanguard Solo 401k also offers a Roth account. You can contribute the employee deferral limit into a Roth solo 401k, which is $20,500 for 2022 and $22,500 for 2023. If you’re at least 50 years of age, the limits are $27,000 for 2022 and $30,000 for 2023.
Unfortunately, the Vanguard Solo 401k does not offer a mega backdoor Roth solo 401k.
The investment options offered is where the Vanguard Solo 401k falls compared to competitors. With a self-directed solo 401k plan, you can invest in any asset class, including alternative assets like crypto, real estate, and private equity. Vanguard only lets you invest in Vanguard mutual funds. You can’t invest in individual stocks, ETFs, or alternative assets.
Rollovers & Loans
Vanguard allows rollovers, but only from existing IRAs that you own. You cannot rollover a 401k.
The option to take a solo 401k loan is not a feature that’s offered with Vanguard.
Vanguard offers a free solo 401k plan with a $20 per fund, per year fee. You can only invest in Vanguard mutual funds, and the fees are only waived if your account balance is over $50,000.
Because of the high fees, the Vanguard Solo 401k is not an ideal retirement account to build a complete investment portfolio. If you invest in 10 different funds, you’ll have to pay $200 per year just to have your money invested. As a result, Vanguard representatives recommend only investing in one or two funds if your balance does not exceed $50,000.
In comparison, a self-directed solo 401k plan, like the Ocho Solo 401k, offers checkbook control, the ability to invest in any asset class with tax-free compounding, including alternative assets, and the ability to contribute up to 3x more into your Roth solo 401k account through a mega backdoor.
If you’re looking for a basic solo 401k, have over $50,000, and you’re fine with investing your solo 401k funds into just Vanguard mutual funds, the Vanguard Solo 401k is an easy option, especially if you already have an existing relationship with Vanguard.
However, if you’re looking for more premium solo 401k features, and want the ability to invest your funds in more asset classes, then look into a self-directed solo 401k plan. You can compare more solo 401k plan providers here.
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