Does E-Trade Offer a Solo 401(k)?


If you own your own business with no additional employees, you may want to start a Solo 401(k). One of the biggest Brokerages out there is E-Trade. Does E-Trade offer a solo 401(k)?

E-Trade offers a Solo 401(k) plan which they refer to as an Individual 401(k). The contribution limits are $57,000 under 50 years of age or $63,500 over 50 years of age using the catch-up contribution. Salary deferrals can be made with pre-tax contributions or after-tax (Roth) contributions. 

Now that you know E-Trade offers Solo 401(k) plans, let’s go over what it will provide for you, how easy it is to set up, what the pros and cons are and how E-Trade stacks up against competitors.

E-Trade’s Individual 401(k) Plan

Who can open an Individual 401(k)? That’s a great question. Solo 401(k) plans are designed for individuals that own their own business and have no full-time employees besides themselves. If an individual also employs his/her spouse, the spouse is covered under this type of plan as well. That’s another benefit to this type of retirement plan.

If you have any additional full-time employees, the Solo 401(k) is not sufficient and you will need to open a different type of 401(k) such as a SEP IRA or a Simple IRA which E-Trade also supports.

The biggest benefit to a Solo 401(k) plan is that it allows for higher contribution limits with tax-deferred options making it the ideal solution to business owners with no full-time employees besides themselves or their spouse.

The reason it is able to provide higher contributions is that there are two methods of contributing to a Solo 401(k). The first is through employee deferral which is basically the employee’s contributions. Secondly, since the business owner is the employer as well, the employer can make additional contributions known as profit-sharing contributions.

The benefit of this is that you can contribute as an employee and employer at the same time. Don’t worry, we’ll work through an example in a minute!

If you open a Solo 401(k), you can choose between a Traditional pre-tax 401(k) or a Roth after-tax account. You can also mix the two for more flexibility allowing you to choose how you want to invest your money.

How to Setup a Solo 401(k) with E-Trade

In order to set up a Solo 401(k), you need to complete all forms and have the account started before 12/31 in order to start contributing to it the following year. You then have all the way up to April 15th to make contributions for that year’s tax purposes.

Filling out the application formOpens in a new tab. is simple. Once it’s filled out completely, mail it or fax it to E-Trade and await approval.

What Are the Pros and Cons to a Solo 401(k)

Pros

  • It allows the business owner to don two hats as the employee and the employer which adds to higher contribution limits.
  • As the employee, contribution limits up to $19,500 (or $26,000 for age 50 and up) are allowed.
  • As the employer, contributions can be made up to 25% of the compensation. The maximum amount is $57,000 for 2020.
  • It allows you to take out a loan up to 50% of your balance and up to a maximum of $50,000.
  • Requires no additional tax paperwork until you reach a balance of $250,000 (at which point you will be required to file a Tax Form 5500).

Cons

  • Can only be used for business owners and their spouses
  • Once additional employees are hired, a new plan will need to be established to include ERISA (Employee Retirement Income Security Act).

Example Solo 401(k) for Kylo

Kylo is 35 years old and owns a business selling lightsabers. He has a salary of $80,000 per year. As an employee, he can contribute up to the max of $19,500. As the employer, he can contribute up to an additional $20,000 (25% of his reported W-2 salary of $80,000) to get to a total of $39,500.

As always, though if he gets a raise, the cap that he can ever receive among all 401(k) plans he’s enrolled in is still $57,000.

If you don’t like my Star Wars example (I’m not sure why you wouldn’t), feel free to read the example provided by the IRS hereOpens in a new tab.. Don’t worry, we can still be friends.

How Much Does the E-Trade Solo 401(k) Cost?

Here’s a list of their pricing structure for investments:

StocksETFsMutual FundsOptionsBonds
$0$0Price Varies (no-load, no transaction fees on 4500 funds)
$0.50 – $0.65 per contract$1.00 per bond ($10-$250)

With $0 commissions on all Stocks and ETFs, E-Trade definitely has quite a bit of customization available.

You can also choose to manage your entire portfolio on your own and save on fees or use one of their money management options where they manage your portfolio at an annual fee of between 0.30% to 1.25% depending on the complexity of your portfolio and the balance.

Are There Deposit Incentives with E-Trade?

There sure are! If you invest at least $5,000 into an account with E-Trade you’ll earn at least $100 as a deposit bonus. Here’s an entire breakdown showing how much your deposit breakdown will be if you choose to start an account with E-Trade:

How does E-Trade’s Solo 401(k) Stack Up?

Let’s look at some of the most popular companies with regards to Solo 401(k)s and see how they actually compare to E-Trade.

E-TradeVanguardFidelityCharles Schwab
Opening Fee$0$0$0$0
Trade Fees$0 Stocks and ETFs (Others vary)$0 Stocks and Select ETFs (Mutual Funds Vary)$0 Stocks/ETF/Options$0 Stocks/ETFs
Offers RothYesYesNoNo
Able to RolloverYesNoYesYes
401(k) LoansYesNoNoNo
Maintenance Fees$0 Self Managed (Services exist for fund management)$20/year per fund$0$0

One of the things I noticed above is that E-Trade seems to offer the most feature and the least amount of fees. Although a lot of the competition offers some of the features provided by E-Trade, none seem to offer all of the same features.

Conclusion

Yes, E-Trade Offers Solo 401(k) plans. Hopefully, you now not only know that it provides Solo 401(k) plans but that they are easy to set up, can be easily customized, and offer the highest contribution limits as far as retirement vehicles go.

You should also be able to see the benefits of employee deferral contributions and employer profit-sharing contributions. These are what lead to higher contributions.

Also, compared to the competition, you know that the Individual Retirement Plan offered by E-Trade stacks up very well. It seems to offer the most features and has the least amount of fees.

Once you set up your Solo 401(k), consider learning about how to develop an investing plan that will fit your needs.

Eric Baglio

Eric Baglio has been investing for over ten years and learned a lot of valuable lessons along the way. He has helped numerous people start investing on their own and founded Let's Start Investing to help anyone willing to learn how to build wealth. His favorite brokerage is Webull and his favorite stock advising service is Motley Fool Stock Advisor.

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