Contributing to a 401(k) retirement plan is one of the best ways to build wealth and finance retirement for millions of American workers.

Finding the optimal 401(k) provider can be challenging because there are so many providers on the market. Providers range from traditional investment companies to integrated human resource and payroll providers and even extend to fintech firms that utilize robo-advising techniques to reduce fees.

When it comes to choosing a 401(k) provider for your business, make sure to explore your options and choose a provider who meets your most pressing needs without overpaying for transaction fees and account management.

Overview:

Best Overall: Charles Schwab
Best Solo 401(k): Fidelity
Best For Large Business: T. Rowe Price
Best For Integrated Business Services: ADP
Best For Small Business: Betterment

Best 401(k) Providers in 2021

Best Overall: Charles Schwab

Charles Schwab is a household name for many investors because they offer their index Advantage 401(k) plans with very low fees and customizable 401(k) plans depending on what you and your team need.

Investment products included in the 401(k) plans include indexed mutual funds, ETFs, and more, all without annual fees. Charles Schwab recently acquired Thinkorswim from TD Ameritrade, which is one of the most powerful trading platforms on the market which is ideal for customers who prefer a higher contact strategy with their investments.

Companies who sign on with the Charles Schwab Index Advantage 401(k) plan receive access to the rest of Schwab's Banking and brokerage services. There are no account minimums with the Schwab 401(k) plans, and customers enjoy tax-deductible contributions and tax-deferred earnings.

Pros:

• No annual fees

• 24/7 Support services for all accounts

• Commission-free trades for all stocks and ETFs

Cons:

• Broker-assisted trades can be expensive

• Active investment tools may be lacking for experienced investors

Best Solo 401(k): Fidelity

Solo 401(k)s are powerful financial tools for self-employed workers because they enable them to invest for retirement and manage their finances while enjoying t ax-deferred benefits. Business owners and individuals who can provide proof of self-employment income c an qualify for Solo 401(k) accounts.

Fidelity is one of the biggest names in personal finance, and they have impressive offerings for solo 401(k)s without charging regular account fees or commissions on ETF and stock trades. Customers who choose to sign on with Fidelity gain access to a wide range of retirement resources, fractional share trading, and over 3,400 fee-free mutual funds. Since managing your own 401(k) can sound daunting, Fidelity makes it simple by providing a simple interface and user dashboard so you can track your investments, manage your money, and research new positions.

Fidelity goes the extra mile for solo 401(k)s because they provide many resources such as investment calculators, educational materials, and mobile apps to help you build and stick to a retirement saving strategy.

Pros:

• Excellent record-keeping service

• Extensive library of investment educational material to help define retirement goals and strategy

• No opening or closing costs, plus over a thousand mutual funds with no transaction fees

Cons:

• Does not allow Roth contributions or 401(k) loans

• Fee structure not transparent

Best For Large Business: T. Rowe Price

T. Rowe Price has been in the business for over 80 years, and they offer excellent 401(k) plans for companies with up to 1,000 employees.

They boast access to over 5,400 low-cost funds, which on average have lower expense ratios than the rest of the industry. If you are in the nonprofit or tax-exempt space, T. Rowe Price offers a wide variety of 403(b) plans in addition to their 401(k) options.

Employers who sign on with T. Rowe Price gain access to mutual funds, bond funds, target-date funds, and stock funds, none of which charge sales fees.

Pros:

• Abundance of mutual funds with no transaction fees

• Options for nonprofit retirement and tax-exempt 403(b) plans

• Robust retirement education resources for customers

Cons:

• Not ideal for active investors

• Fewer ETF options than competitors

Best For Integrated Business Services: ADP

ADP Is a powerhouse for small businesses and big businesses alike. They offer 401(k) plans that are flexible and easy to manage for most employees because they range from basic contribution plans with automatic investments for people who would prefer not to worry about investment allocation, all the way to advanced portfolios that enable employees to choose the funds and Investments that comprise their 401(k).

Along with their 401(k) service, ADP offers payroll, Human Resource Management, tax software, Insurance management, and much more, making them an appealing all-in-one solution.

Pros:

• Comprehensive business services including retirement accounts, payroll, HR support, and more

• Flexible transfer options for companies who switch to ADP from other providers

• Customizable plans range from hands-off management to advanced-sample line-ups that allow employees to manage their investments

Cons:

• Some funds have relatively high fees

• Extensive service offering may be overwhelming for smaller businesses

Best For Small Business: Betterment

Betterment is one of the newer players on the marketplace for providing 401(k)s to business owners. You may be familiar with Betterment's philosophy of using robo-advising to help create tailored investment plans at a fraction of the cost charged by traditional advisors.

Who is Betterment ideal for?

Smaller businesses want to offer 401(k)s to their employees without breaking the bank or signing on to a provider who offers services that are not relevant to its smaller business.

Since Betterment is a robo advisor, most fees are eliminated because they primarily invest in Exchange Traded Funds (ETFs) instead of mutual funds. ETFs trade in shares, and each share has fractional shares of an index such as the S&P 500.

If you utilize ADP or Intuit for your payroll solutions, Betterment integrates directly with them, making contribution management easy for you and your employees.

Pros:

• Transparent fee structure among the lowest on the market

• Higher average employee contribution rate

• Personalized Robo-advising for all employees

• Payroll integrations

Cons:

• Lacks some services that traditional providers offer

• Not ideal for larger businesses

How to Choose the Right 401(k) Provider For You

Identify Your Needs

As you can see, there are plenty of options for 401(k) providers that range from large-scale solutions for companies with over a thousand employees and smaller solutions that make managing 401(k)s for small teams very accessible.

The first step in choosing the right or 401(k) provider is identifying what you need for your team. If you want a small and straightforward solution, you may want to work with a provider who is an expert at working with small business owners and providing a limited suite of services.

On the other hand, you may want a comprehensive provider who offers all of these services if you want payroll, human resources, accounting, and reporting all to integrate together.

Shop Around

Once you identify what functionality and services you want from a 401(k) provider, you should shop around and identify companies that offer the most transparent fee structures and lowest cost to maintain.

The most crucial factor for a smaller company is to make sure that you get the most bang for your buck with your 401(k) provider. You don't want to pay excessive fees for a provider that charges above-average transaction costs for you and your employees.

Likewise, if you are in charge of a large enterprise, focus on finding a partner who can seamlessly integrate with your existing systems to avoid mass confusion and potential disruptions for your teams.

401(k) FAQs:

What Happens To A 401(k) When You Quit?

In the event you move on to a better job, but have money sitting in your old employer's 401(k) account, you may be wondering: what happens to that money?

If you have less than $1,000 in the account, your old employer may cash out the account and send you a check for the balance. Maintaining employee investment accounts cost money, and they most likely do not want to pay for the maintenance fee. If your account has between $1,000 and $5,000, Your employer might perform an involuntary cash-out, which means they will move the funds from their 401(k) account into an IRA.

If you have more than $5,000 in the account, you could leave it alone to grow, but if you want to take it with you, you couldn't either roll it over into a new 401(k) if your new employer offers one or convert it into an IRA account.

Can You Contribute To A 401(k) Without An Employer?

The short answer is no; you cannot contribute to a 401(k) without an employer as an individual. 401(k)s require sponsors, which is why they are called employer-sponsored retirement plans.

However, there are two significant exceptions:

1. If you are self-employed or a business owner, you can set up a solo 401(k) for yourself, which gives you most of the benefits of a traditional employer-sponsored 401(k).

2. If you previously were contributing to a 401(k) at your old employer, you can keep your balance in that account, but you cannot make new contributions to a 401(k) housed at a previous employer.

How Much Money Should I Contribute To My 401(k)?

Most financial advisors recommend saving at least 10% of your gross salary and contributing to your 401(k) at the beginning of your saving money. Some advisors even recommend socking away up to 20% of your gross salary if you can't afford it to help you reach your retirement goals.

One of the most essential factors in deciding how much you should contribute to your 401(k) is if your employer offers a match. Many employers provide a 401(k) match to match a dedicated percentage of your contribution or a portion of your contribution up to a stated amount.

For example, if your employer explicitly will match up to 4% of your salaried contributions, this is essentially free money, bringing your overall contribution to 8%.

Can I have 2 401(k) plans?

Suppose you have two different jobs that both offer 401(k) retirement plans. You may be wondering if you are eligible to contribute to both retirement plans to maximize your retirement savings.

The short answer is yes, you can contribute to multiple 401(k) plans simultaneously, but this may affect your tax liability around tax time. Since the IRS allows individuals to deduct up to $17,000 in 401(k) contributions annually, you may wonder if this applies to both of your accounts.

However, the IRS uses the entire $17,000 as a cumulative amount, so if you plan to contribute to multiple 401(k)s, remember you can only deduct $17,000 in total, and not per account.

401(k) vs. IRA

A 401(k) is an employer-sponsored retirement plan that your employer can issue, or you can open it for yourself if you are self-employed. 401(k)s are considered tax-deferred plans because you contribute to them through payroll deductions and pay the taxes on them when you take withdrawals during retirement.

Individual Retirement Accounts (IRAs) are managed solely by an individual and are usually funded with post-tax dollars. The benefit of an IRA is that you pay taxes upfront, the money can grow in its account tax-free until retirement, and your withdrawals will also be tax-free.

Can I have a 401(k) and an IRA?

Yes - you can contribute to both a 401(k) and an IRA. 401(k)s are employer-sponsored retirement plans, whereas IRAs are personal retirement accounts that are not related to your employer.

Many people contribute to both 401(k)s and IRAs and maximize their retirement savings if they are eligible.

Remember that 401(k)s have much higher contribution limits of $19,500, but the IRS limits IRA contributions to $6,000 or $7,000 per year.

Sources:

• TD Ameritrade & Schwab. (2020). Tdameritrade.Com.
  https://www.tdameritrade.com/why-td-ameritrade/td-ameritrade-charles-schwab.html

• What Happens to Your 401(k) When You Quit? (2020). Ellevest.
  https://www.ellevest.com/magazine/retirement/401k-when-you-quit

Justin Estes is a freelance personal finance writer with experience in investment, credit cards, bank accounts, and retirement planning content. He previously worked in investor reporting for multiple real estate private equity firms before starting his own content agency, Financial Bestes, LLC + LinkedIn.