downside to buying VG funds from fidelity in solo 401k?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
whitecliff
Posts: 64
Joined: Sun Jun 02, 2013 6:30 pm

downside to buying VG funds from fidelity in solo 401k?

Post by whitecliff » Sun Jun 16, 2013 4:21 pm

I have posted several times recently and I have learned alot and I think I am getting my retirement portfolio going on the right track. My last piece of info I need to sort out is about my solo 401k and utilizing the backdoor roth IRA conversion. I currently have a SEP-IRA with vanguard and want to open a solo 401k to maximize salary deferral contributions and be able to roll my SEP over into the 401k so not to invoke the pro-rata rule while doing my backdoor roth conversion. In reading through the forum and vanguard website, I see vanguard does not accept rollovers. In reading on the boards most people use fidelity for this service. When looking through fidelity funds similar to vanguard, their expense ratios seemed to be 2 to 3 times higher than similar vanguard funds. So my question is can I continue to use a fidelity hosted 401k and purchasing vanguard funds without any extra fees or penalties? I looked through their website and didnt see anything about this. How do other bogleheads accomplish this? I hate to move my accounts from vanguard as I have had good experiences using them but if they dont offer the service I have to find someone who does. Thank again for everyone who has given advice.

User avatar
Duckie
Posts: 5074
Joined: Thu Mar 08, 2007 2:55 pm

Re: downside to buying VG funds from fidelity in solo 401k?

Post by Duckie » Sun Jun 16, 2013 5:17 pm

whitecliff, you have some options:

  1. Once you move the SEP-IRA into the solo 401k at Fidelity you could then roll the solo 401k over to Vanguard. That type of rollover is allowed.
    .
  2. You could buy Vanguard ETFs through Fidelity.
    .
  3. You could check out the Fidelity Spartan index funds. For retail investors they have an "Investor Class" and an "Advantage Class" similar to Vanguard's "Investor Shares" and "Admiral Shares". Many of their funds are equivalent to Vanguard's and very inexpensive. Go here, then click on "S" and scroll down to check out the Spartan options.
    .
    For example compare:
    1. (FSTVX) Spartan Total Market Index Fund Advantage Class (0.06%)
      (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
      .
    2. (FSGDX) Spartan Global ex U.S. Index Fund Advantage Class (0.18%) <-- Missing small-caps but otherwise equivalent.
      (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.16%)
      .
    3. (FSITX) Spartan U.S. Bond Index Fund Advantage Class (0.10%)
      (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.10%)

retiredjg
Posts: 30549
Joined: Thu Jan 10, 2008 12:56 pm

Re: downside to buying VG funds from fidelity in solo 401k?

Post by retiredjg » Sun Jun 16, 2013 5:34 pm

Duckie wrote:[*]Once you move the SEP-IRA into the solo 401k at Fidelity you could then roll the solo 401k over to Vanguard. That type of rollover is allowed.

This made me laugh. :happy

whitecliff, I don't know what funds you are comparing. The Spartan funds, as indicated by Ducky, are about the same cost and almost identical to the Vanguard index funds (other than the international which Ducky pointed out). They don't offer much to a value investor though.

whitecliff
Posts: 64
Joined: Sun Jun 02, 2013 6:30 pm

Re: downside to buying VG funds from fidelity in solo 401k?

Post by whitecliff » Sun Jun 16, 2013 5:41 pm

Duckie wrote:Once you move the SEP-IRA into the solo 401k at Fidelity you could then roll the solo 401k over to Vanguard. That type of rollover is allowed.


How would this help me accomplish the backdoor roth? Because all the taxable income from the sep is in the 401k I could then open a nondeductible Ira and then convert each to the roth each year? Is this correct? Are their fees associated with rolling over that many times?

Duckie wrote:You could buy Vanguard ETFs through Fidelity.


not familiar enough with ETFs to be confident in my choices ( I will work on that).

Duckie wrote:You could check out the Fidelity Spartan index funds. For retail investors they have an "Investor Class" and an "Advantage Class" similar to Vanguard's "Investor Shares" and "Admiral Shares". Many of their funds are equivalent to Vanguard's and very inexpensive. Go here, then click on "S" and scroll down to check out the Spartan options.
.
For example compare:
(FSTVX) Spartan Total Market Index Fund Advantage Class (0.06%)
(VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
.
(FSGDX) Spartan Global ex U.S. Index Fund Advantage Class (0.18%) <-- Missing small-caps but otherwise equivalent.
(VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.16%)
.
(FSITX) Spartan U.S. Bond Index Fund Advantage Class (0.10%)
(VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.10%)



I guess I was looking at more target retirement funds they have. For example

Fidelity Freedom Fund 2050 expense ratio of 0.81 versus around 0.18 for Vanguard
Fidelity Freedom Fund 2045 0.80
Fidelity Freedom Fund 2040 0.79

Most of their ratios are 4x vanguards.

whitecliff
Posts: 64
Joined: Sun Jun 02, 2013 6:30 pm

Re: downside to buying VG funds from fidelity in solo 401k?

Post by whitecliff » Sun Jun 16, 2013 5:43 pm

retiredjg wrote:Duckie wrote:
[*]Once you move the SEP-IRA into the solo 401k at Fidelity you could then roll the solo 401k over to Vanguard. That type of rollover is allowed.

This made me laugh.


Is this not a legitimate option? If not, please explain.

retiredjg wrote:They don't offer much to a value investor though.


Not sure what you mean here either. Sorry again I am still figuring this out as I go.

retiredjg
Posts: 30549
Joined: Thu Jan 10, 2008 12:56 pm

Re: downside to buying VG funds from fidelity in solo 401k?

Post by retiredjg » Sun Jun 16, 2013 5:54 pm

whitecliff wrote:
retiredjg wrote:Duckie wrote:
[*]Once you move the SEP-IRA into the solo 401k at Fidelity you could then roll the solo 401k over to Vanguard. That type of rollover is allowed.

This made me laugh.

Is this not a legitimate option? If not, please explain.

As far as I know it is a legitimate option and something I would consider if I couldn't get what I wanted at Fidelity. I was laughing because it is a little dumb that you can't roll a SEP into Vanguard's Solo 401k but you can roll it into a Fido 401k and then all back into a Vanguard Solo 401k.

I don't know the costs of doing this twice.

retiredjg wrote:They don't offer much to a value investor though.

Not sure what you mean here either. Sorry again I am still figuring this out as I go.

I meant that they don't have a Spartan small cap value index fund. Some people would want that, but that does not seem to be an issue for you.

You are correct - Fidelity's target funds are a very poor choice in relation to Vanguard's target funds. They do have one balanced fund - the Four In One Index Fund - that is a really good choice, but it might not fit the stock to bond ratio you are interested in.

If you really want a target fund, SEP to Fido to Vanguard is your best choice. If you are willing to hold the individual funds instead of an all-in-one fund, Fidelity's Spartan funds are just about as good as Vanguard.

User avatar
Duckie
Posts: 5074
Joined: Thu Mar 08, 2007 2:55 pm

Re: downside to buying VG funds from fidelity in solo 401k?

Post by Duckie » Sun Jun 16, 2013 6:11 pm

whitecliff wrote:
Duckie wrote:Once you move the SEP-IRA into the solo 401k at Fidelity you could then roll the solo 401k over to Vanguard. That type of rollover is allowed.

How would this help me accomplish the backdoor roth? Because all the taxable income from the sep is in the 401k I could then open a nondeductible Ira and then convert each to the roth each year? Is this correct? Are their fees associated with rolling over that many times?

Once the SEP-IRA is in a solo 401k (whether at Fidelity or Vanguard) you can easily use the Backdoor Roth IRA method. As for fees, you may pay a fee to roll from your existing SEP-IRA to Fidelity. But you're going to do that anyway despite any possible fees because you need to. I don't know if Fidelity will ding you with an account closure fee. To me the paperwork hassle would be more of an issue than the fee. But if you really want Vanguard, it would be worth it.

Duckie wrote:You could check out the Fidelity Spartan index funds.

I guess I was looking at more target retirement funds they have. For example

Fidelity Freedom Fund 2050 expense ratio of 0.81 versus around 0.18 for Vanguard
Fidelity Freedom Fund 2045 0.80
Fidelity Freedom Fund 2040 0.79

Most of their ratios are 4x vanguards.

If you want inexpensive funds at Fidelity you will have to use their Spartan funds.

retiredjg wrote:Fidelity's target funds are a very poor choice in relation to Vanguard's target funds. They do have one balanced fund - the Four In One Index Fund - that is a really good choice, but it might not fit the stock to bond ratio you are interested in.

(FFNOX) Fidelity Four-in-One Index Fund (0.22%) is roughly 60% US stocks, 25% international stocks (developed markets only), and 15% bonds. You can do better.

User avatar
Majormajor78
Posts: 894
Joined: Mon Jan 31, 2011 9:13 pm
Location: Chicagoish

Re: downside to buying VG funds from fidelity in solo 401k?

Post by Majormajor78 » Sun Jun 16, 2013 6:31 pm

There is a page on the wiki that specifically goes over Boglehead style investing at Fidelity as well as a Fidelity vs. Vanguard fund comparison.

http://www.bogleheads.org/wiki/Fidelity
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."

whitecliff
Posts: 64
Joined: Sun Jun 02, 2013 6:30 pm

Re: downside to buying VG funds from fidelity in solo 401k?

Post by whitecliff » Sun Jun 16, 2013 8:14 pm

Majormajor78 wrote:There is a page on the wiki that specifically goes over Boglehead style investing at Fidelity as well as a Fidelity vs. Vanguard fund comparison.

http://www.bogleheads.org/wiki/Fidelity


thanks going to look at it

Post Reply