Picking the right solo 401k provider

November 17, 2008 4:55 PM

How should I evaluate prospective solo 401k providers?

I have recently become an independent contractor and I'm in it for the long haul. I've done the reading about IRAs vs. solo 401k and the latter is for me: it will allow me to contribute much more money for my retirement.

Now, to pick a provider! On what criteria should I compare them?

posted by gsh to Work & Money (2 answers total)

The criteria laid out in A Random Walk Down Wallstreet by Burton Malkiel is that you want a no-load index fund.

Basically an index fund tries to match the market - e.g. just stocks from the S&P 500 rebalanced occasionally if one stock dives or rises to represent a disproportionate amount of your holdings. "Don't try to beat the market, just try to match it, over the long term it's always done very well, and often better than the pundits" is the basic message.

Since it's pretty automatic, there's no person to pay for managing it, so you don't pay a management fee, hence being no-load. The more fees you pay, the less of what the fund earns ends up in your pocket.

Vanguard - the company Burton Malkiel founded or worked at when he first wrote the book in the 70's, and I believe pioneered no load index funds, but are by no means the only ones offering this type of investment.

You should also look into basic lifecycle investing - you want more volatility when you're young and can potentially make bucket loads, but can also afford to lose bucketloads. By the time you near retirement you want to be mostly out of the stock market & into much more stable investments that return a steady income with very little risk.

Nearly every mutual fund company should have an index fund that automatically adjusts itself as you age, but these may or may not carry fees.
posted by Muffy at 8:39 PM on November 17, 2008

Best answer: A friend of mine in this situation was able to come up with something through Fidelity that was pretty good. He is a member of the Freelancer's Union and said that they also had some useful info. His criteria were: fees, available investments and flexibility (i.e. whether he could easily roll-over other investments into his 401k, etc.). Basically, he found that as fees go up, so do available investments and flexibility.

Muffy, you are answering an entirely different question.
posted by iknowizbirfmark at 10:25 AM on November 18, 2008