Vanguard 401k Review and Pricing

Pricing

Investment experts caution against paying too much in investment fees because they erode your returns, and even small percentages can impact potential long-term savings. Vanguard’s low fund expense ratios make it a popular choice among investors, and Vanguard is our best pick for individual 401(k) plan providers.

Individual 401(k) plans are best for self-employed people who want to save as much as possible in their retirement accounts, as you can contribute as both an employee and as an employer, and invest up to $56,000 per year (or up to $62,000 if you’re age 50 or older). Like other 401(k) plans, you can save up to $19,000 as an employee, and you can choose between tax-deferred or Roth contributions. Then, as an employer, you can contribute up to 25 percent of your self-employment income.

Here’s an overview of Vanguard’s pricing for individual 401(k) plans.

• Setup fee: None
• Minimum initial investment: None, but funds have a minimum investment of $1,000
• Average fund expense ratio: 0.11% for Admiral Shares, and 0.18% for Investor Shares
• Trading fees: All Vanguard ETF and mutual funds have no transaction fees
• Account service fee: $20 annually per fund. This fee is waived when you have an account balance of $50,000 or more (Other types of Vanguard accounts have different requirements to have this fee waived. For example, some of its account types only require you to sign up for electronic delivery instead of paper statements.)

Because this type of retirement vehicle is intended for higher savings, we didn’t deduct points for the account service fees, since they’re waivable with an account balance of $50,000. The rep we spoke with suggested investing in a single fund – such as a target date fund – to minimize this fee until you’re eligible to have it waived.

Features

Vanguard differs from many of its competitors in that it’s an online brokerage – it doesn’t have any physical offices where you meet with an in-person investment advisor. Instead, you set up your account and manage your investments online, which helps the company keep its costs low. It’s also different in that it’s not a publicly traded or privately owned company, rather it is owned by its investors. Here’s more information on its features.

Account setup: You can download the Individual 401(k) Employer Kit from Vanguard’s website. It includes instructions and all the forms you need to set up your account, including a plan adoption agreement and basic plan document. If you have questions or need help filling out the forms, you can call the company for help. Once you enroll as a Vanguard client, it takes seven to 10 business days to set up an individual 401(k) plan.

Investment choices: You can choose from more than 100 Vanguard mutual funds. Of these, 38 are index funds with Admiral Shares (a Vanguard share class that has a lower average expense ratio ranging from 0.04 to 0.45%, with an average of 0.11%).

Fund research tools: Vanguard provides multiple tools to help you research funds before you invest in them. You can do side-by-side comparisons, view historical charts that track a fund’s performance, search funds by your investment objective and create a watch list to monitor specific funds.

Advisory services: You can call the company and speak with a representative who can offer you guidance on your investments, but this account type isn’t available for Vanguard’s personal advisory services.

Reporting requirements: If your account reaches $250,000 or more in assets, you will be required to submit IRS Form 5500. The company will provide you with the information you need to complete this form.

Loans. No loans are available from this account.

Rollovers. If you have an old 401(k) accounts from a previous employer, you can’t roll it over into this account, but you can roll it over into a Vanguard IRA. If you call the company, a representative can help you set the IRA up and transfer your assets.

Withdrawals. Vanguard offers a free Required Minimum Distribution Service that calculates your RMD and can automatically deposit your money in your bank or transfer it to a nonretirement investment account.

Mobile app. Available for Apple, Android and Kindle devices, you can use the Vanguard app to check your account balance and performance, analyze your portfolio, research funds, read financial news, and buy and sell funds. Once your account has been open for at least 60 days, you can also use the app with the camera on your phone or tablet to make mobile check investments.

Additional Considerations

If you need help setting up an account, selecting investments or need to speak with an account representative, you can call Monday through Friday between 8:00 a.m. and 8:00 p.m. ET. You can also email the company for customer support. The company also offers a variety of searchable online help resources, including articles, FAQs, comparison charts, calculators and online lessons on financial topics such as getting the most out of your retirement plan, estate planning and saving for college.

When we called the company, posing as a small business owner, we spoke with a representative right away. The rep was patient and knowledgeable, asked about our situation and took the time to explain our options and the setup process. He disclosed fees and explained what they are, how to get them waived, and offered tips to minimize the fee until we qualified to have them waived.

Drawbacks

If you want to trade stocks and options rather than invest in ETFs and mutual funds, other brokerages have lower trading fees. As mentioned above, Vanguard doesn’t have physical brokerage offices, so if you prefer to meet with a financial advisor in person, this isn’t the best option for you. Lastly, Vanguard charges an annual account service fee, and you need to have $50,000 in your Vanguard accounts to have the annual maintenance fee waived for the individual 401(k) plan.

Editor’s note: Need an employee retirement plan for your business? Click the Compare Quotes button below to have our vendor partners reach out to you with information.