The Solo 401k – A Dividend Investor’s Best Friend

If there’s one thing you can do right now to supercharge your investing success, it is this:

Start your own business on the side.  It doesn’t matter what it is…but start one.

If you start your own business, you will gain access to what is probably the most powerful retirement tool known to working man – the solo 401k.

The solo 401k is a special type of retirement account open ONLY to people who own their own business, and don’t have any full time employees – ie. are operating solo.

These plans come with two MASSIVE advantages for the dividend investor:

Flexibility. Most employer plans suck, only allowing high expense ratio funds you don’t want. With an individual 401k, you can shop around for a brokerage that offers full brokerage services. You can also find one with brokerage services AND a Roth plan for maximum booya-liciousness.

Potential to amp up your pre-tax contributions to $53,000/ yr: Not only do you get to sock away $18k per year, but you can also make contributions as an employer of up to 25% of your income, to a max of $53,000/yr. If you’re 59 or older, that’s $59,000/ yr that you can be socking away. Granted, you will need to make some serious coin to pull this off, but if you can, you can accelerate your retirement even faster.

An important point about your own employer match:

If you’re investing in a Roth solo 401(k), the match needs to be in pre-tax dollars – there is no Roth match possible. Something to keep in mind.

As to where to open your solo 401k:

  • I currently hold my solo 401k at Fidelity. It’s pretty simple to set up, and has full brokerage privileges. The only disadvantage to Fidelity is that it doesn’t have a Roth option, however. That said, for me, I decided to go with pre-tax money, since my income is relatively high, I don’t own a home, and thus need some kind of tax protection.
  • Vanguard – Has a Roth, and if you like Vanguard’s inexpensive index funds, it could be the way to go. For a dividend investor, however, not ideal as there is no brokerage option
  • TD Ameritrade & Etrade – May be the ultimate options, as they have both a Roth option, and full brokerage as well.

There are other options, of course, but these seem to be the best ones of what I researched myself. I ultimately went with Fidelity as they are as solid as it comes, and there’s a branch nearby.

So that’s it. The biggest regret people I have about this account is I didn’t open it further. So if you’re looking to get the max out of every dollar you can, consider starting your own business online and funneling all the money you make into the solo 401k. Then as it grows, you’ll be able to take full advantage of the many awesome advantages of this account.

2 Comments

  1. FerdiS July 28, 2016
    • Greg Gee July 28, 2016

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