ASK KIM
Opening an Individual 401(k)
by Kimberly Lankford

I am self-employed and would like to open up an individual 401(k) to save money for my retirement. Has your magazine compiled a list of companies that offer individual 401(k)s?

For the best list, check out 401khelpcenter.com's provider list. You'll find contact information for nearly 90 mutual fund companies, brokerage firms, third-party benefits administrators and financial planning firms that offer individual 401(k)s for self-employed people. The options have improved a lot since the plans were first introduced. "It's much less expensive to set up than it was 18 months ago," says Rick Meigs, president of the 401(k)helpcenter.

You'll also find a wide range of investment choices. Some mutual fund companies still limit you to their own funds, but others let you invest in almost anything.

Fidelity's self-employed 401(k)s have the same investment choices as the firm's brokerage customers, including more than 4,500 mutual funds (1,100 without transaction fees), stocks, bonds and CDs. There's no set-up fee. Plus, there are several ways to avoid the $50 annual brokerage fee, such as if your household has at least $30,000 in Fidelity accounts or if you sign up to receive all of your Fidelity statements online.

Benefit Plans Plus, known as a third-party individual 401(k) administrator, sets up the plan documents so you can use an account at any brokerage firm or mutual fund company for your solo 401(k) -- even if they don't offer the individual 401(k)s themselves. BPP charges a $375 set-up fee then a $350 annual plan administration fee for filing the tax forms and completing other paperwork that many firms don't do for you. You also may have brokerage fees where you set up the account.

Now's a good time to consider an individual 401(k), which lets self-employed people save as much as $41,000 per year in pretax money (or $44,000 if age 50 or older). You must establish the plan by December 31 but have until April 15, 2005, to make your 2004 contributions. For more information about individual 401(k)s and other retirement plans for self-employed people, see Do-It-Yourself Retirement Plans.