Build vs buy: software for 401(k) TPAs and recordkeepers

When buying is the right call

• Your plan types and workflows are standard.
• You have a small team and no appetite to own software.
• The vendor already handles annual limits, new SECURE 2.0 rules and Form 5500 changes.
• You can live with the vendor's roadmap and hosting model.

When building pays off

• Your process is a competitive advantage, such as a service model, fee structure or reporting your clients value.
• Data is re-keyed between testing, forms, billing and the ledger, and the hours add up every year-end.
• No product connects to your payroll providers, recordkeepers or custodians the way you need.
• You need control over where participant data is hosted.
• You are building a product to sell, as a fintech or a recordkeeper.

The hybrid most firms choose

Keep a proven core for testing or recordkeeping, and build the pieces around it that the product does not do well: data intake and validation, integrations, owner dashboards, billing and sponsor portals. This removes most re-keying without taking on the whole rule book.

Costs people forget

• Annual rule updates. IRS limits change every autumn; new law adds rules over several years, as SECURE 2.0 has.
• Year-end support. Testing and filing seasons need software and people available.
• Calculation testing. A regression suite of worked examples has to be kept up to date.
• Security reviews. Clients and auditors will ask how participant data is protected.
• Data migration. Moving plans in or out of any system needs reconciled balances.

Side by side

For independent TPAs there is also a middle path we built ourselves: KinetiPlan, a TPA operating system that can be hosted in the TPA's own environment. It is a working pilot build.

Software Home builds custom 401(k) software, so we have an interest in this question. We have tried to set out both sides fairly. See TPA software development or talk to us.

References

1. IRS: COLA increases for dollar limitations on benefits and contributions
2. Congress.gov: H.R. 2617, Consolidated Appropriations Act, 2023 (includes SECURE 2.0)
3. US Department of Labor: Form 5500 series