Vanguard exits managing Solo 401(k) accounts - but we still love their ETFs and funds
Why did you leave us, Vanguard?
The ‘don’t blame me’ blurb: I am not a financial advisor, portfolio manager, or accountant. This is not tax or investment advice; it’s information to get you going. Please consult your trusty professional and do your due diligence. Carry-on!
Here at Freelancer Finance, we are all about the Solo 401(k). It’s the retirement investment account that will make us rich in the background as we continue the day-to-day hustle (if you haven’t started one as a freelancer, get going here with our guide.) So when Vanguard, one of our preferred Solo 401(k) providers, announced the transfer of management for their individual Solo 401(k) accounts to Ascensus, it got our attention. WTF Vanguard?
Vanguard, renowned for its low-cost index funds and commitment to investor-first principles, has long been a trusted name in the investment world. They pioneered low-cost ETFs and funds, and as they got bigger and bigger over the years, they made their funds cheaper instead of making more money for themselves. In fact, if you own any Vanguard funds or ETFs YOU are technically an owner of Vanguard. I love that! Read more about it here.
What does this mean for us?
Current Vanguard Solo 401(k) holders — Those of us who already hold a Vanguard Solo 401(k) will have the account transferred automatically to Ascensus. The Vanguard mutual funds in the Solo 401(k) do not change, they move just as they are. Ascensus charges a $20 per year fee to manage the Solo 401(k) and $20 per mutual fund held inside the account. Or, you can move the Solo 401(k) to another provider, more below.
Newbies about to open an Solo 401(k) — What Vanguard excels at is creating low-cost, reliable, profitable funds. You will still buy the funds mentioned in the Solo 401(k) guide, but a different provider will manage the account's admin.
Ok, so what provider do I use for Vanguard mutual funds now?
E*Trade seems the best option right now, but I will keep digging and updating this post and the guide. E*Trade doesn’t charge anything to buy Vanguard mutual funds; you can also buy stocks and ETFs in their Solo 401(k) if you want to. They offer the traditional deferred Solo 401(k) (the big tax deduction version) and the Roth Solo 401(k) (the pay no tax when you start to withdraw it option).
Schwab is my go-to for most investment accounts (great service and easy-to-use website). Unfortunately, they charge $74.95 for each Vanguard mutual fund purchase. This is a non-starter, as we trade four times a year.
Why did they break up with us?
I mean, that’s always the question we want to know in a break up, right? It seems from what I can gather, they didn’t have enough Solo 401(k) accounts to create scale and wanted to concentrate on what they do best — creating ETFs and Mutual Funds. It seems running Solo 401(k) accounts creates a lot of back-office reporting and compliance work that they didn’t want to deal with. Fine, whatever. We still love you.
More info on the shake-up
National Association of Plan Advisors
https://www.napa-net.org/news-info/daily-news/breaking-vanguard-exit-individual-401k-business-ascensus-deal
The finance geeks over at Bogleheads (Jack Bogle was the founder of Vanguard)
https://www.bogleheads.org/forum/viewtopic.php?t=429947&sid=365787d5725775ac9999165f090a97e1
