Guzzo the Contrarian

There’s been speculation over the past few years about The Vanguard Group offering an individual 401(k) plan, but nothing’s ever materialized. However, once the Pension Protection Act of 2006 made most of the 401(k) benefits permanent, I had a feeling that Vanguard would be offering one soon.

So, I brought this subject up again in the Bogleheads Investment Forum this past May, and some of the forum members wrote that various Vanguard reps told them that they “may” be offering an individual 401(k) plan by the end of this year, but nothing was yet definite. So, imagine my surprise when I read BearWolf’s message that The Vanguard Group recently posted specifics about their Individual 401(k) Plan on their website.

The only current self-employed retirement plans offered by The Vanguard Group are SEP IRAs and SIMPLE IRAs. While both are a little easier than an individual 401(k) plan to set-up and manage, an individual 401(k) offers self-employed individuals added benefits. Greater contributions may be made to an individual 401(k) at identical income levels, and tax-free and penalty-free individual loans can be taken against a portion of it’s value.

However, as of this writing, it doesn’t look like The Vanguard Group will allow individual loans from, or allow other retirement-plan transfers into, their individual 401(k) plan. Hopefully, Vanguard will change their minds about not offering these two important features before, or soon after, they roll out their individual 401(k) plan.

For help in deciding which plan is best for your specific situation, Vanguard offers a side-by-side comparison of the three plans, but Beacon Capital Management Advisors offers a more in-depth and informative site.