Self directed 401k typical fees?

Question

I want to start a self directed 401k with the option to use the money I put in there to buy properties.

However, it’s very difficult to find good information on providers and fees.

What fees should I expect to pay and what are fair amounts for these fees?

Brian Eastman · Answer

@Michael J Scanlon

Fees range from a few hundred dollars for a set of documents and a pat on the back up to $1,500 or more for a plan that comes with meaningful support.

Unfortunately, there is not always a direct correlation between price and quality of service.   This is a field where you will want to do some research and take care to select a quality vendor.

If you go the inexpensive route, be prepared to engage a CPA or tax attorney at their normal hourly rate for support.  It likely will cost more in the long run.

Calvin Thomas · Answer

Old eyes. I misread.

Brian Eastman · Answer

@Calvin T.

The OP was asking about a self-directed Solo 401(k), with an intention to be able to use the plan to invest in real estate.

A Fidelity Solo 401(k) is going to be limited to investing in conventional assets such as stocks and funds.  A brokerage offered plan will not have the capacity to be fully diversified and invest outside the stock market.

Calvin Thomas · Answer

How's free?

https://www.fidelity.com/retirement-ira/small-business/self-employed-401k/overview

Todd Goedeke · Answer

@Michael J Scanlon, ask provider if they are licensed to give tax and legal advice. Ask them specific questions about real estate and other types of investments including investments in loans to private companies. Ask if you will be given one or two dedicated people to answer your questions when you call. Ask them what types of online technology resources they have at your disposal to walk you through answers to your questions.

Ask them how many times you can call in terms of your annual maintenance fee or will you be billed for calls over a certain number.

Ask to see the hierarchy of their support staff. Don t expect a senior staff member to service your account if they oversee hundreds of accounts.You need to be able to get service from someone on a timely basis.

Ask what kind of ongoing education they provide to keep you updated on IRS regulation changes. Do they have a blog or podcasts? Do they regularly keep in touch with case studies about fellow clients and do's and don't s ? Not every investor knows all the potential investments one can make with a Solo 401k. Lots of times seeing case studies will reveal a new investment not thought of previously.

Providers for the most part provide documents and help you to avoid IRS rule infractions and penalties.They don t make investment recommendations. Find a mentor for that.

George Blower · Answer

@Michael J Scanlon

Here are considerations in choosing a provider:

Considerations in Choosing a Solo 401k Provider:

1. Confirm that the provider has a pristine reputation (e.g. Better Business Bureau reviews, etc.).

2. You may wish to confirm that the new 401k provider has experience with the particular investments in which you intend to invest your retirement funds as you very likely will have questions in terms of the mechanics (e.g. how do you invest in real estate, etc.).

3. You may wish to confirm that the new 401k provider will handle the ongoing compliance support such as any required 5500 filing (e.g. 5500-ez for a one-participant plan with assets in excess of $250,000), any required tax reporting (e.g. 1099-r in the event of a distribution or in-plan Roth conversion), mandatory plan updates and amendments, etc.

4. If you might take a 401k loan, you may wish to confirm that the new 401k provider will prepare the required 401k participant loan documents.

Bernard Reisz · Answer

@Michael J Scanlon

@Brian Eastman has provided great context for your search. It takes a substantial amount of real research to begin to reach the point at which true comparisons between providers and fees can be made.

Real research requires accessing vetted and credentialed sources of technical info - and the ability to distinguish between the hyperbolic and the genuine.

The first step is to assess the scope of service that you need. But, there are "document sellers" that deliberately understate the compliance requirements. Interestingly, the fees for such documents range from a few hundred dollars to a few thousand.

However, the key to avoiding compliance pitfalls and maximizing the ROI of your plan lies in its operation. For that, you'll have to identify service providers that have the expertise and integrity to give you meaningful support & insight.

Self directed 401k typical fees?

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