Need help finding Third Party Administrator for Solo 401k

[Guest PaddyMac]

We have self-directed SEP-IRA plans with Wells Fargo, under the PMA plan (100 free trades a year per account). I am convinced that with our higher income this year, and the fact that we are both turning 50 this year, we should convert our two SEP-IRA plans to two Solo 401k plans. We are sole proprietors as husband/wife, filing Schedule C income.

I called Wells Fargo and they can open Solo 401k plans for us no problem, and then roll over the SEP-IRA investments into the new plans, all under the same PMA account. So that's good. The only problem...

In order to open the Solo 401K, Wells Fargo needs a Third Party Administrator (TPA) to provide the plan. The best I could find online are companies who will set up the plan for a fee (or not), and then also charge an annual flat fee to administer the account.

Does anyone have any recommendation for where to find a TPA with a good low-cost plan? We have a CPA and do our own investing, so we don't need any other tax or investment advice - just the plan documents, and to keep everything legal etc.

(The cheapest I've found is $195 a year for both owner&spouse, with no setup fee, at MySolo401k.net.

PenServe also looks interesting, though I can't find prices on their website.)

At some point when we slow down into early retirement we might just continue with the SEPs and close the 401k, since we'll be saving a lot less then. So if we do rollover now to a Solo 401k, can we later roll it back to a SEP?

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If we can't find a good plan, an alternative we are considering is continuing to make EmployER contributions ONLY to our SEP-IRA (as we like the mix of funds that WF offers), and ONLY making EmployEE salary deferrals + catchup contributions to a new Vanguard Solo 401k. (The Vanguard Solo 401k is a plain vanilla plan offering 100 Vanguard mutual funds, but it only costs $20 a year.)

I've read all I can on these forums about the danger of mixing both a SEP and a Solo 401k, and having to amend the SEP form with Wells Fargo to indicate that any excessive employer contributions should be deducted from the SEP. I imagine they will think I'm a nutcase if I ask them for a prototype SEP plan, so if anyone has any more tips on exactly what language I need to insert to be legal, I'm all ears. (The Vanguard concierge told me I could NOT have both a SEP and a Solo 401k, by the way.)

Sorry for all the questions, and thanks in advance. This seems to be a very knowledge board.

PS. The deficit commission has put forward the proposal to cap the combined contributions to $20K or 20% of income anyway, so the huge benefit of the Solo 401k vs. the SEP may disappear if that recommendation is ever adopted.

[Jim Norman]

You ask a lot of good questions, the sort that a TPA can answer. But you won't get good, knowledgeable answers from an online service charging $195 per year.

Much like choosing to use something like legalzoom.com for DIY legal documents, or hiring an attorney who can advise you as well as create documents.

Some thoughts. One 401(k) plan can cover both you and your wife, as can one SEP document. You don't need to roll the SEP accounts into it though you can. The maximum SEP is $49K the maximum solo 401(k) is $54,500, depending on your income of course. Also assume you have no employees and neither of you are part of a controlled group or affiliated service group with any other employer except each other. You can mix and match SEPs and 401(k), but you have to read the plan documents, especially the SEP documents to see if this is allowed. No real advantage to doing so. You will likely need to file an annual 5500 form and also keep your documents up to date for legislative and regulatory changes. You can self-trustee a 401(k) plan opening up lots of other investment options. You can have separate accounts for each of you in a 401(k) or pool the plan assets for both of you perhaps reducing investment costs.

Good luck.

[Guest PaddyMac]

You ask a lot of good questions, the sort that a TPA can answer. But you won't get good, knowledgeable answers from an online service charging $195 per year.

Thanks Jim. I'm not sure what questions I would have for the TPA? Yes, we are a simple sole proprietor as husband/wife, no employees.

Between our CPA for tax advice, and Wells Fargo Advisors who are managing the brokerage accounts, we are pretty self-directed. All WF needs to open the Solo 401k account and get going with the rollover is to know that "we have a plan in our files" (they don't even want a copy of the plan, according to the last guy I talked to). So I'm trying to find a way to keep everything simple, and find a TPA that will provide a basic plan that passes muster with the IRS and then just get out of the way!

One TPA company called today touting their Solo 401k plan and wanted me to transfer our WF assets, so we could then invest in real estate (ugh). Vanguard were nice but really just wanted to roll our SEPs over to VG, touting their low trading fees (although the concierge was a bit taken aback when I mentioned that WF doesn't have any trading fees). PenServe wants you to log in with Windows 97 or later (what century are they in?! Anyway, we're all Mac here, and I refuse to use Windows, so I haven't called them).

Hence my fallback to keeping our SEPs and using Vanguard for employee contributions only. Their online account management looks very user friendly. But if I could find a TPA that was well-regarded and good value, I'd love to check them out.

By the way, here is the link to the TPA I was considering - http://www.mysolo401k.net/HOW-IT-WORKS.html

[update: I've discounted that company thanks to the power of google maps and zillow. "Suite 7" in the address is Apartment 7. And it's not even a very high-end apartment...forget that...)

[K2retire]

If your accountant is comfortable preparing the 5500s and calculating your contributions, perhaps you need an ERISA attorney to draft the document and keep it up to date instead of a TPA.

[Guest PaddyMac]

If your accountant is comfortable preparing the 5500s and calculating your contributions, perhaps you need an ERISA attorney to draft the document and keep it up to date instead of a TPA.

Yes, I daresay our CPA can handle that as his company services small businesses. We would only need the 5500-EZ also. I have a call into him to see if he knows of a good TPA.

Perhaps all I need is an ERISA attorney, but the word attorney conjures up the image of high hourly fees (our intellectual copyright lawyer is $550 an hour...). But thanks for the lead, I will look into that too.

[Bird]

Yes, I daresay our CPA can handle that as his company services small businesses. We would only need the 5500-EZ also. I have a call into him to see if he knows of a good TPA.

Perhaps all I need is an ERISA attorney, but the word attorney conjures up the image of high hourly fees (our intellectual copyright lawyer is $550 an hour...). But thanks for the lead, I will look into that too.

You're on the right track. IMO, you could find a "local" TPA to do everything for 1/2 the price (or less) that an ERISA attorney would charge for just a document. No offense to the attorneys here but...

Check with your CPA first and second, go through the local yellow pages under "pension plans." Just be clear about what you want when you call because so many aren't really doing admin; they're selling investments. You want someone to: 1) write the document, 2) maintain the document, 3) proved admin services such as contribution calculations and preparation of Form 5500-EZ, when needed.

[Guest PaddyMac]

Thanks Bird. I never thought of looking thru the phone book - how quaint! But working with someone local would be great.

I'm an old hand at calculating our SEP contributions as the year progresses and the Solo 401k employer calculation is similar (plus our CPA double-checks my figures and helps us max them out at tax time). The Employee contribution is a flat fee, so that's easy.

I just got a call back from Safeguard Financial Advisors, http://www.ira123.com/, who understand what I need and sounded professional. They will do the initial plan for $1,875 and then an annual $125 fee to maintain it. The annual fee sound fine, but I'd like to check some more to see if I can get a better price on the initial setup. I know I can save more tax deferred, but that's almost $2K I'd rather have in my retirement account!

[Guest PaddyMac]

Followup: I just talked with a company in Albuquerque (local enough to where we live) that can do the docs for perhaps $1250, and they should be good for a few years (so I'm hoping for no annual fee if I take care of calculations and filing the 5500-EZ). The owner is away, so those details may change. Thanks again for the tip to look up the phone book (which is use in my artroom to wipe off etching plates...who knew there was useful information in it!)

Interesting enough, when I googled the company, I came across this site, BrightScope:

http://www.brightscope.com/form-5500/basic...ring-Plan/2009/

This has all the details of their 401k plan?! I'm assuming BrightScope can't get the details of our 401k plan this way without our permission?

[12AX7]

If you file a Form 5500-EZ, this information is not in public records through brightscope of similar websites. Form 5500 and 5500-SF as you can see are public record and have always been. The internet just makes it easier to get access to this information.

[Guest PaddyMac]

If you file a Form 5500-EZ, this information is not in public records through brightscope of similar websites. Form 5500 and 5500-SF as you can see are public record and have always been. The internet just makes it easier to get access to this information.

Whew, thanks! I'll make sure to file a 5500-EZ then. I was afraid it might be something like Zillow where you have no choice, but then I thought that no sole proprietor would ever want a solo 401k if their private financial savings were so easy to find online.

[austin3515]

Dpeendng on just how simple your situaiton is, and just how high your incomr is, Schwab, Fidelity and the like have super-simple documents to fill out (I mean like 2 pagers), which they will keep up to date with the rules for you. I'm sure ther are other examples. No TPA, No ERISA Attorney - just your CPA doing an EZ for you, for which he/she should not charge much.

[Bird]

Sigh. I don't want to drag this out, but paying that much for a document and then getting no ongoing admin support is not giving you much, if any, marginal benefit over just using a simple document from one of the big institutions as austin3515 mentions. Without a specialist (and your CPA is not a specialist) doing some kind of admin function each year, you will mess something up sooner or later. I know it sounds simple, and each calculation is simple enough, but there are too many interrelated limitations for a layman to be doing this stuff. Unfortunately, I guess there's not enough competition in our industry because you're not finding a good solution. Maybe check back with the owner of the "local" company and see if that person is more helpful.

[austin3515]

If he's making a couple hundred thousand a year and wants to put away $49,000 a year, and tehre are no employees, etc. I think most CPA's are more than capable of such a cookie-cutter endeavor. When you takle non-discrimination and ERISA out of the picutre entirely, a TPA's added value starts to evaporate pretty quickly.

[Guest PaddyMac]

I do appreciate the variety of responses, thanks. I started out just want to stash away a bit more income tax deferred so we would qualify for Roth IRA contributions this year as I'm afraid we'll hit the phaseout limit.

I'd no idea finding a plan could be so hard and expensive. I have looked into Vanguard's Solo 401k (100 mutual funds only, but low expenses) and Fidelity (choices not to our liking), so I don't want to only invest in those companies. At Wells Trade we can buy a wide range of everything, including Vanguard, with 100 free trades per account.

It may be that I do a split if our CPA is alright with that. We would keep our SEPs going at WF for employer contributions, then use Vanguard for employee contributions. That arrangement doesn't give us access to a Roth 401k though, which paying for a plan would. And over time, the taxes saved in the Roth would help offset the initial plan fee compared to paying taxes on gains.

I've also pitched to the local company to barter their 401k plan fee for a website, since they don't have one and websites are something I do professionally. Who knows, stranger things have happened. Fortunately we have a few months to make a decision. I'm a big believer in waiting until something feels right before committing so I'm happy not to feel rushed.

[Guest PaddyMac]

Just an update FYI:

I heard back from PenServ and their EZ-K plan for a Solo 401k (with a Roth 401k) is $500 for setup, and $500 every year after that. They have an optional 401k loan agreement for $150 that is a one-time fee, no ongoing fee. They seem very professional, and keep the plan updated annually with a complete restatement every five years or so.

[edited below]

Considering I can open a simple plan at Vanguard for $20 a year for employee contributions and keep the SEPs going for employer contributions (something PenServe did not disagree with when I mentioned it), I think that might be my best bet (if my CPA agrees).

By the way, I also just found out that Vanguard's Solo 401k has a Roth 401 component: https://personalp.vanguard.com/us/whatweoff.../individual401k

I swear the rep. I spoke to said they didn't have that(!), but that's really good news as it just offers more flexibility. I think all they are missing is an option for a 401k loan, but I don't care about this aspect of it.

Thank you all again for your help.

[Bird]

You can't have a SIMPLE plan and a SEP going at the same time. That's the kind of stuff I'm talking about where you can get yourself in trouble. fwiw the fees you mention seem reasonable.