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Individual/Solo 401(k) Plans

/Individual/Solo 401(k) Plans

Individual/Solo 401(k) Plans

iQ401k and VRPA Recordkeeping partnership was designed to cater to small business group retirement plans.  However, while Individual 401(k) Plans may not have a need for the VRPA Recordkeeping platform, iQ401k still offers fiduciary services for owner-only plans.


Structure of an Individual 401(k) plan is similar to that of a group retirement plan except it does not necessarily require a Recordkeeping platform.  A Recordkeeping platform allows some features to be automated, such as contribution investing, rebalancing, and reporting.

In most cases, an Individual 401(k) Plan functions like any other brokerage account, which generally only requires a custodian (a brokerage company) to hold plan assets.  We currently work with TD Ameritrade, Charles Schwab, and Fidelity to custody Individual 401(k) plan assets.  If a Roth 401(k) Deferral is one of the desired features of the plan, then the only option would be TD Ameritrade.  Charles Schwab and Fidelity do not offer the Roth 401(k) Deferral feature. Also, if you are doing annual Backdoor Roth Conversions, assets held in an Individual 401(k) Plan are excluded from the Pro Rata Rule.  This is not the case with other employer-sponsored plans, such as SEP-IRA’s and SIMPLE IRA Plans.

Plan Features

Roth 401(k) Deferral feature allows the owner to contribute $19,500 (additional $6,500 if you are 50 or older) to the plan for 2021. Individual 401(k) Plans are also good candidates for Mega Backdoor Roth’s, which should be explored if feasible.

Another feature that is underutilized by many sole practitioners is adding a Defined Benefit or a Cash Balance plan to an Individual 401(k) Plan.  A DB/CB Plan is a great way to “superfund” your retirement savings.  Allowed saving rates vary with age.

Administrative Responsibilities

Owner-only plans are generally not required to file a Form 5500 if plan assets are below $250,000.  Otherwise, required to file one. This form can be filed by your CPA/Tax Advisor, if this is a service they provide for their clients.  If not, the owner can hire a Third-Party Administrator (TPA) to file the Form 5500.  Annual fees range between $500 and $750.

Investment Options

Owner has the option of managing the plan account himself/herself or hire a fiduciary.  If the plan is being self-managed, we offer a DIY investment platform that provides access to institutional class investments from industry leaders, such as Vanguard, Dimensional, PIMCO, etc.  Owner can also use our Private Client Services as a third-party fiduciary.  With this option, plan will have access to the same funds as the DIY platform but can also utilize our investment management services.

Asset Protection

Assets inside an Individual 401(k) Plan are not covered under ERISA laws but are by state laws which are usually still strong.  Each state is different.  A few states comply with the federal exemptions, but many have separate laws.  Visit IRS website for more details.