ETrade Solo 401k: The Top 3 Questions to Ask

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At Emparion, we are big fans of Etrade in the retirement space. But how much do you know about the Etrade solo 401k plan? In this post, we will take a close look.

Solo 401k Basics

Are you in business for yourself? When’s the last time you thought about your retirement plan? If you’re like many others, it takes a back burner because it’s not in your face, offered as a 401K from your employer. Fortunately, there is a great way to save for retirement while you pursue your goals of being an entrepreneur – a Solo 401K.

The individual 401K has a lot of similarities to the employer-sponsored 401K, only in this case you are the employer and the employee so in essence, you make both contributions.

The difference between the Solo 401K and an IRA is the amount you can contribute. An IRA allows maximum contributions of $6,000 per year. That’s minimal compared to the Solo 401K maximum of $57,000 per year.

self employed

When you contribute to an individual 401K, you do so with money from your earnings (the money you take home) and a portion of your company’s profit sharing. There are no age limits – you can contribute as long as you want to this account. If you are over the age of 50, though, you may contribute even more – an additional $6,500 each year (the amounts may change slightly each year).

Why Choose E-TRADE

E*TRADE is a great option for your Solo 401K. You pay no commission fees for stock, ETF, and option trades. They also offer no-load and no transaction fees for more than 4,500 mutual funds. They can open plans for sole proprietors, partnerships and S-Corps.

Bond and options contracts do have minimal administrative fees, but they are affordable compare to other brokerage firms.

Investing with E-TRADE

Opening a Solo 401K with E*TRADE is simple. Start with their Small Business Selector tool to make sure you are opening the right type of account. After choosing the individual 401K, you’ll need:

  • An EIN from the IRS. Head over to the IRS website and apply for your number. It takes only a few minutes and you get the number instantly.
  • Download the E*TRADE application and complete it in its entirety.
  • Send the original application and documents to E*TRADE, keeping a copy for yourself.

E-TRADE’s Cash Back Program

E*TRADE offers cashback on certain deposits. The more money you deposit in your account, the more cashback you earn. The cashback starts at $100 and goes up to $2,500, but the deposit amounts are quite high. Deposits between $5,000 and $24,999 get $100 and the cashback bonuses go up from there.

Investing in Your Solo 401K at E-TRADE

E*TRADE offers two options to manage your Solo 401K funds. You can choose and manage them yourself or pay E*TRADE Capital Management do it for you, but for a fee. No matter what you choose, consider the following when investing:

  • How close are you to retirement? The closer you are to retirement, the more important it is to stay conservative with your investments. Taking wild chances when you’re near retirement doesn’t give you time to recoup the loss should something happen.
  • What’s your risk tolerance? Don’t forget about your risk tolerance, no matter your age. A diversified portfolio offsets the risk, but choose your investments according to your risk tolerance.
  • What are your goals? What retirement goals do you have? Do you have big dreams or will you live a simple lifestyle? Your investment choices will need to reflect these goals.

E-Trade Solo 401K Accounts

You have two options when opening a Etrade Solo 401K account. The difference is when you realize the tax benefits.

  • Traditional 401K – You get the tax break right away with this account as you make your contributions before you pay taxes. Your earnings grow without any tax liability too. When you withdraw the funds, you pay taxes so your tax bracket at the time of retirement is what determines your tax liability. For many people, their tax bracket is lower during retirement, but everyone is different.
  • Roth 401K – You make contributions after you pay taxes on your earnings, so you don’t get the tax benefit right away. Your earnings grow tax-free just like a traditional 401K; however, when you withdraw the funds, you pay no taxes, not even on your earnings.

You can’t withdraw funds from either account until you are 59 ½. If you do, there’s a 10% penalty on top of the tax liability.

Making Contributions

You make contributions in two parts:

  • Employee contributions – You may contribute up to $19,500 (in 2020) as an employee per year. If your earnings are lower than $19,500, you may contribute up to 100% of your earnings from your self-employment.
  • Employer contributions – You may contribute $57,000 or 25% of your earned income minus half of your self-employment tax (whichever is lower).

Your Spouse’s Individual 401K

Typically, the individual 401K is for solo-entrepreneurs, but there’s one exception. If your spouse works with you, both of you can have a Solo 401K. Essentially, this means you can double up on the retirement savings as you may each contribute the same amount.

Your spouse must work/contribute to the business in order to qualify and if you take on any employees that aren’t your spouse, you aren’t eligible for the Solo 401K any longer and will have to change plans, choosing one with more administrative responsibilities.

Bottom Line

If you work for yourself, now is the time to save for retirement. It doesn’t matter if you are old or young – don’t give up the tax advantages and the ability to save now for retirement down the road. The sooner that you start, the more time your earnings have to compound or the more time your money has time to ride the storm and come out ahead – giving you a great start on your retirement.

If you are looking to set up a retirement plan, you certainly should consider the Etrade solo 401k.

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4 thoughts on “ETrade Solo 401k: The Top 3 Questions to Ask”

  1. If you have any pull at all with any relevant decision-maker at Etrade, please ask them to consider reforming their overly restrictive options trading policy for solo 401k’s, i.e. you cannot get approval for anything higher than Options level 1. All you can to do is sell covered calls and roll them. No selling of cash covered puts, which is literally no more risky, and just about every other brokerage lets you do that in their solo 401k. AND Etrade actually will approve options level 2 in their solo IRAs, so restricting the 401ks is even more nonsensical. Anyone interested in trading options in their solo 401k should know this about Etrade.

    • Hi Peter – I wish I had some pull, but not much I can do. They are a little restrictive on the options side. Unfortunately, I have found that to be the case with many custodians. They just don’t get the options side outside of covered calls. Good luck!

  2. I am self employed and wanting a conservative retirement plan as I am in my mid 40’s. I am looking to use Etrade Solo 401k but stuck trying to figure out what the difference between the Uninvested Cash Program options are – Cash balance program vs RSDA. Is one an obvious better choice? Any insight is greatly appreciated.

    • Hi Kell – you want to consider a cash balance plan if you are looking for larger contributions (like $75k plus) and you can commit to them for a few years. If you are OK with smaller contributions and want the flexibility to fund or not fund in a given year then I would stick with a 401k.


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