Vanguard Individual 401k Question

[docCyclone]

So, after looking around for a while, trying to get some clarity on an i401k issue...

Spouse had 1099 independent contractor income, so set up i401K at Vanguard.

I've got a main job TSP account (maxing out), but have some recent 1099 income coming in, and want to set up an i401k for myself.

Is there a way to add on an additional account to the spouse's i401k plan just for simplicity of management?  The way I understand it, as spouses/partners in business we can both be on the same 401K.  Do I just fill out the employee application on the spouse's employer i401k account? Or do I have to do both the employer and employee parts all over again?

As a side point, I'm not totally wed to Vanguard, so I could set up the i401k at another company.  I'm just trying to limit the metastatic spread of accounts.

[jfoxcpacfp]

SOLO-k's are individual, not joint. You'll need to open your own account. I really don't recommend you and your spouse combine your IC income into a partnership. It really wouldn't be appropriate if you are each doing your own thing and you would have to file partnership income tax returns (Form 1065). If you're trying to simplify, iow, you want to avoid filing an unnecessary partnership return.

[docCyclone]

Gotcha.  That would make it much worse.

[ENT Doc]

Don't advise Vanguard for a few reasons.  First, they don't allow rollovers from SEPs or Traditional IRAs.  Second, they are marginally competent.  My wife has been trying to move her i401k out of Vanguard to Fidelity for months and has been given different information every time she calls in for what forms to fill out.  Go with Vanguard funds, beware of everything else.

[spiritrider]

There is another important reason why Vanguard is sub-optimal for a one-participant 401k plan.

It may seem counter-intuitive, but Vanguard is not even remotely the lowest cost option, because they do not allow Admiral Share index funds in their Individual 401k. You must use their Investor Share index funds at much higher expense ratios.

Schwab's Individual 401k offers their single class index funds ($3K min), Fidelity's Self-Employed 401k offers their Premium Class index funds ($10K min) and TD Ameritrade's Solo 401k offers Vanguard ETFs commission free. So Vanguard isn't even the best place to invest in Vanguard assets for a one-participant 401k.

Here is a comparison of the expense ratios for a three-fund portfolio containing Total Stock Market (TSM), International Stock Market (ISM) and Total Bond Market (TBM):

Vanguard i401k:  TSM; VTSMX = 0.16%, ISM; VGTSX = 0.18%, TBM; VBMFX = 0.16%

Schwab i401k:  TSM; SWTSX = 0.03%, ISM; SWSSX = 0.06%, TBM; SWAGX = 0.04%

Fidelity se401k: TSM; FSTVX = 0.045%, ISM; FSGDX = 0.08%, TBM; FSITX = 0.05%

TD Ameritrade s401k: TSM; VTI = 0.05%, ISM; VXUS = 0.11%, TBM; BND = 0.06%

[jfoxcpacfp]

spiritrider wrote:

Here is a comparison of the expense ratios for a three-fund portfolio containing Total Stock Market (TSM), International Stock Market (ISM) and Total Bond Market (TBM): Vanguard i401k:  TSM; VTSMX = 0.16%, ISM; VGTSX = 0.18%, TBM; VBMFX = 0.16% Schwab i401k:  TSM; SWTSX = 0.03%, ISM; SWSSX = 0.06%, TBM; SWAGX = 0.04% Fidelity se401k: TSM; FSTVX = 0.045%, ISM; FSGDX = 0.08%, TBM; FSITX = 0.05% TD Ameritrade s401k: TSM; VTI = 0.05%, ISM; VXUS = 0.11%, TBM; BND = 0.06%

Click to expand...

Amazing. I think you might blow up a few lizard brains with that one.

[litovskyassetmanagement]

docCyclone wrote:

So, after looking around for a while, trying to get some clarity on an i401k issue…

Spouse had 1099 independent contractor income, so set up i401K at Vanguard.

I’ve got a main job TSP account (maxing out), but have some recent 1099 income coming in, and want to set up an i401k for myself.

Is there a way to add on an additional account to the spouse’s i401k plan just for simplicity of management?  The way I understand it, as spouses/partners in business we can both be on the same 401K.  Do I just fill out the employee application on the spouse’s employer i401k account? Or do I have to do both the employer and employee parts all over again?

As a side point, I’m not totally wed to Vanguard, so I could set up the i401k at another company.  I’m just trying to limit the metastatic spread of accounts.

Click to expand...

Actually, it makes a lot of sense to have a single solo 401k account even if you have two completely separate/independent 1099 income sources, and here's why.

First, exactly as spiritrider suggested, Vanguard's individual 401k product is highly deficient vs. the competition.  Higher cost of funds, no incoming rollovers, and might I also add, no flexibility as far as adding a Cash Balance plan, among other things.

Second, if you do insist on using Vanguard, you can instead use their VRIP account (which is a pooled account that you manage yourself), but you'll need to hire a TPA to create a plan document for you, as well as to fill out form 5500 once your assets are over $250k.  For a single plan that might not be worth it, but if you get two for the price of one, the math might be different.

To save money, you can indeed use a single plan document and have both of your businesses adopt it, thus you save yourself the cost of a separate engagement with a TPA, and pretty much have a single plan for both you.  A single account is much easier to manage because all money and money types are in one account tracked by the TPA.

If all you want is to manage in your wife's 401k at Vanguard, all you need to do is become an administrator for the plan, and also become a limited agent for her account.  Both of these will give you admin/investment access to her account, so there is no need to open a separate account for yourself.  If it makes sense (if there is only a single 1099 income, and it is rather large), you can become an employee of hers and get a W2 so that you can make additional contributions into the plan, if the numbers warrant this approach.

In short, there are many ways to play this game cost-effectively especially if you want to do all of your investing at Vanguard.  All of the brokerages allow one-person investment accounts as well, so this can be implemented at all of the other discount brokerages the same way.