Vanguard Small Business 401k Cost and Plan Comparison Guide

Vanguard Small Business 401k plans offer a range of costs, from 0.04% to 0.17% in administrative fees, depending on the plan size and investment options.

To get the best deal, small business owners should consider the plan's administrative costs, which can be higher for smaller plans.

For example, the Vanguard Small Business 401k plan with a plan size of $100,000 to $499,999 has an administrative fee of 0.07% to 0.11%.

Smaller plans, under $100,000, may incur higher fees, up to 0.17%.

Additional reading: Average 401k Fees by Plan Size

Vanguard is a well-known and respected financial services provider that specializes in low-cost investing strategies.

Their 401(k) program, called Vanguard Retirement Plan Access, is specifically designed for small and midsize businesses.

This program can handle many of the recordkeeping and administrative tasks that have made 401(k)s difficult and expensive for smaller businesses to maintain in the past.

Here are some key benefits of Vanguard's small business 401(k) solution:

Vanguard offers a wide range of investment options for small business 401(k) plans, making it easier for employees to choose investments that fit their risk tolerance and retirement goals.

You can choose from Vanguard's many different funds, which are available through the Vanguard Retirement Plan Access program. In fact, you'll have access to over 12,000 non-Vanguard funds as well as company stock and other investments through a self-directed brokerage account.

Employers will typically narrow down the investment options to a more manageable number, usually around 10-20 funds, to ensure that employees can properly diversify their portfolios based on their age, years until retirement, and other factors.

Here's a breakdown of the types of investment options available:

Keep in mind that the fees associated with these investment options vary, with some plans charging a $20 annual fee per participant for custodial services, while others charge a $25 fee for each Vanguard mutual fund in each account.

Employees can contribute up to $23,000 or 100% of their compensation for workers under age 50, and up to $30,500 or 100% of their compensation for older workers in 2024.

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Employer matching contributions can serve as a perk to attract and retain workers, and can be up to 50 cents or $1 for every $1 the employee contributes.

The maximum employer plus employee contribution combined is $69,000, or $76,500 if the employee is 50 or older, in 2024.

Employers can contribute up to 25% of compensation, with a maximum of $55,000 per eligible employee for the 2018 tax year.

Here's a breakdown of contribution limits:

Employers can also choose to contribute to a Roth 401(k), which allows employees to contribute post-tax dollars, but any company matches will be subject to regular income tax when the employee draws from the fund.

Account fees are a necessary aspect of investing with Vanguard Small Business 401(k). The fee on an Individual 401(k) account is $20 per year for each Vanguard small business fund held in the account.

To minimize this fee, consider investing in a single fund, such as a target date fund. This can help reduce the overall cost of the account.

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The account service fee is waived for accounts with an account balance of $50,000 or more. This makes it a worthwhile goal to aim for if you're eligible for the fee waiver.

Vanguard also offers select services, such as Flagship, Flagship Select, Voyager, or Voyager Select, which can waive the $20 yearly account fee if you invest $1 million to $5 million in a Vanguard small business fund.

Here's a summary of the account fees and costs associated with Vanguard Small Business 401(k):

The average fund expense ratio for Vanguard's Admiral Shares is 0.11%, and 0.18% for Investor Shares. Trading fees are also waived for all Vanguard ETF and mutual funds.

You can't take withdrawals from a Vanguard small business 401(k) until certain events occur, such as ending your plan or reaching retirement age (59 1/2).

Hardship withdrawals are available, but if you're under 59 1/2, you'll need to pay a 10% fee on the withdrawn amount.

Taking a retirement loan from a Vanguard small business 401(k) is not an option.

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Vanguard offers three small business retirement plans: the Small Business Individual 401(k), Small Business SEP-IRA, and Small Business SIMPLE IRA.

The Small Business Individual 401(k) is best for sole proprietorships or partnerships with no employees, allowing business owners to contribute as both an employer and employee. Employee contributions can be either pre- or post-tax.

The Small Business SEP-IRA works for self-employed, freelancers, or small business owners, with employers being the sole contributors. Employees can choose to contribute to their own IRA accounts.

The Small Business SIMPLE IRA is best for small business owners with fewer than 100 employees, with employers making dollar-for-dollar matches to employee contributions.

Here's a brief summary of the three plans:

Retirement Plan Access is a crucial aspect of business retirement plans, and it's essential to understand the costs involved.

The cost of a Vanguard VRPA program depends on the number of participants, with employer fees varying accordingly.

A plan's total assets also play a significant role in determining the cost, with more substantial assets typically resulting in lower fees per participant.

Employers can choose from various levels of recordkeeping and administrative services, which affect the overall cost of the program.

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The Vanguard Small Business Individual 401(k) is best for sole proprietorships or partnerships with no employees, allowing business owners to contribute as both an employer and employee.

Employee contributions can be either pre- or post-tax. This plan is ideal for those who want flexibility in their retirement savings.

The Vanguard Small Business SEP-IRA works for self-employed, freelancers, or small business owners with only a few employees. Employers are the sole contributors, and employees can choose to contribute to their own IRA accounts.

This plan is a great option for those who want simplicity and low account fees. The contribution limit is based on a simple formula: 25% of income, up to a cap set each year.

Here's a comparison of the three Vanguard small business plans:

Consider the number of employees, business structure, and desired level of employer contributions when choosing a plan. Each plan has its own advantages and may be a better fit depending on your specific situation.

If you're a sole proprietor or partnership with no employees, you might want to consider the Vanguard Small Business Individual 401(k) plan. This plan is specifically designed for businesses like yours, allowing business owners to contribute as both an employer and employee.

Business owners can contribute pre- or post-tax as employees, giving you flexibility in how you manage your contributions. This plan is a great option for those who want to take control of their retirement savings without the hassle of a traditional 401(k) plan.

Here are some key details to consider:

The Individual 401(k) is a great option for small business owners and solo entrepreneurs.

Vanguard specifically offers an Individual 401(k) plan for sole proprietorships and partnerships with no common law employees.

This plan is designed for companies on the smaller end of the spectrum.

Sole proprietorships and partnerships with no common law employees can take advantage of this plan.

A common law employee is any employee who's not an employer, partner, shareholder of the corporation, or a respective spouse.

This plan offers flexibility and tax benefits for eligible individuals.

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If you're a self-employed individual or a small business owner with only a few employees, the SEP-IRA plan from Vanguard Small Business is a great option. It's a low-maintenance plan with minimal paperwork required.

The SEP-IRA plan is perfect for one-person shows, allowing you to pay low account fees. Your contribution limit is based on a simple formula: you can put away as much as 25% of your income, up to a cap set each year.

Signing up for a SEP-IRA from Vanguard Small Business is an easy process. You can take advantage of this convenient option for busy small business owners.

Here are some key benefits of the SEP-IRA plan:

A Simple IRA is a great option for small business owners who want a straightforward retirement plan.

Vanguard's SIMPLE IRA Plan is a great choice for this type of plan, allowing you to match your employees' contributions and encourage them to save for their own retirement.

With a SIMPLE IRA, you can save more money in the long run, thanks to higher contribution limits compared to other IRAs.

This plan is also a good option if you're willing to match your employees' contributions, making it a win-win for both you and your team.

The Vanguard SIMPLE IRA Plan has minimal paperwork required, making it a convenient option for busy small business owners.

By choosing a Simple IRA, you can provide a solid retirement plan for your employees and yourself, with the potential to save thousands of dollars over time.

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