It is said that opening an Individual (aka Solo) 401k account is tedious and time-consuming. Today I had the pleasure of opening an Individual 401k with Vanguard over the phone and it was incredibly easy and fast. Opening a Vanguard Individual 401k means a lot of tax savings and has a lot of retirement benefits.
If you’re a healthcare professional going into business for yourself or a moonlighting per diem clinician then you’ll really benefit from a Solo 401k. You can defer more taxes into one of these than in a comparable SEP IRA or SIMPLE IRA.
Individual Solo 401k
For a small business owner or a sole proprietor opening a Vanguard Individual 401k is an ideal option to benefit from the same retirement accounts traditionally offered only by employers.
Another big advantage of course is the tax savings that such retirement accounts offer. You can elect to defer taxes on up to $54,000 in 2017.
It’s important to have the account open (even if you don’t fund it until later) before the end of the calendar year, December 31. Today was December 27 and I called Vanguard hoping that there was enough time still to open one.
The Vanguard website only has the pdf application which you must print out and mail back to them. The website says that it’s a 10 day turnaround time in order to get this done through mail.
Also read, the Godfather’s post on solo 401k brokerage options.
Application over phone
I decided to call Vanguard to see if they could help me with opening a Vanguard Individual 401k. To my delight, they were able to accommodate me, including me applying for an EIN.
I was on hold for maybe five minutes before I was transferred to the small business department. There, I spoke to Jeff, who walked me through the entire process which took less than 15 minutes.
The application process
Over the phone the representative will send a DocuSign link to your Vanguard message pool. They will ask you to open this link and it will walk you through each question step-by-step.
There are parts of the application when opening a Vanguard Individual 401k that can be confusing. I would fill it out with some assistance to prevent delays.
The whole process on the phone will take less than 15 minutes. Vanguard recommends that you allow them at least two business days in order to file the paperwork before the end of the year.
It’s important to note that the IRS will often shutdown their EIN generator site a couple of days before December 31.
What To Expect On The Call
Before you call Vanguard for opening a Vanguard Individual 401k it’s advisable to go on the IRS website and obtain that free Employer Identification Number (EIN). Make sure to record this number because it’s not something you can retrieve from the IRS website for at least two weeks. It’s a very easy application and takes less than five minutes.
The Vanguard Individual 401k form will ask you for your business name, in case you have one, social security number, business address, and EIN.
You have the option of using your own name as the name of the business and using your home address as the address of the business.
You will not need any money at this time to open the Individual 401k account. You have up until the following year at your tax deadline date to fund this account. If you choose to file an extension then you’ll have until October 15th of the following year.
Information you’ll need
I would recommend having the following information handy in order to make the call go smoothly.
- Business name
- Business address
- Business phone number
- Employer identification number
- Your spouse’s information
- Beneficiary name
What To Expect Next
That’s pretty much it when it comes to opening a Vanguard Individual 401k. It will take about 2 weeks for you to receive the proper documents. Next, you will want to fund the account which will depend on your income and tax situation.
Read this post about taking a loan, if necessary, to fund a Solo 401k.
2 replies on “Process of Opening a Vanguard Individual 401k”
Just opened an account a couple of weeks ago through Vanguard. My understanding is that the Employer contribution is 20% of net profits correct? Also, we can make the 2017 contribution until April of 2018? Can you confirm? Thanks so much!
Correct, the employer portion comes out to 20% of net profits – but you need to deduct the self-employment taxes (Medicare/SS) from your net profits and then you can calculate the employer portion off of that. There are online calculators which I referenced in the post which will take that calculation into account.
You can make 2017 contributions until your tax filing date – April 15th traditionally or October 15th if you file an extension.