ETrade Individual 401k - application and practical issues

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BusterMcTaco
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ETrade Individual 401k - application and practical issues

Post by BusterMcTaco »

[Thread bumped since 2017, see below. --admin LadyGeek]

Having just gone through applying for the ETrade Individual 401k (AKA Solo 401k) for myself and my spouse, I thought some guidance for those in the future might be useful. It was a harder process than I thought. It may also be useful in the future to have other practical issues addressed (contributions, roll overs, etc.), which this thread could contain.

Application link

If someone sees I did something wrong please let me know because I'll reach out proactively to get it corrected.

Generally: I live in a city with an ETrade office so I went in person to avoid any mistakes. The Financial Advisor who helped me was well intentioned and friendly but when it was clear he didn't know the answer to any of my questions, I insisted on speaking to the local operations person who had actually handled such applications before.

Specifically, things that threw me:
I just did this, so something may yet come back as completed wrong. I will update if so.

I chose to open both a traditional and a Roth 401k plan, for both myself and my wife (qualified joint venture). I ended up filling out 4 full applications: Traditional for me, Roth for me, Traditional for her, Roth for her. Her applications were identical to mine but just replaced all relevant personal information (and business title) to her own, and included her own beneficiaries (her contingent beneficiaries differ from my own as we don't yet have children).

Traditional application (3 signatures, minimum):
INDIVIDUAL 401(k) & ROTH INDIVIDUAL 401(k) APPLICATION
Account Type: Individual 401(k) Plan
Sign section 5
I did not want options trading, but you'd presumably sign section 6 if you do

Designation of Beneficiaries
Edit: you can only use whole percentages. I have 3 contingent beneficiaries and had to change it 33/33/34 instead of 33.3/33.3/33.4
Be sure to sign box 7 at the end (I thought this was specific to box 5 but obviously it is not). I did not need box 4 since my wife is my 100% primary beneficiary (and vice-versa).

SUPER SIMPLIFIED INDIVIDUAL 401(K) PROFIT SHARING PLAN
Standardized Adoption Agreement

I'm guessing I only needed one of these for each of the Traditional/Roth plans. They had my wife complete and sign, too. I don't think that was strictly necessary.
Employer information:
Name of Plan: They had me put "Traditional 401k" before realizing that the Roth application would use the same plan sequence number. We left this. I don't think it makes sense in retrospect, and I'll let you know if anyone says anything. Plan Sequence Number was 001 (this is my first ever solo 401k, I think it might have to increment if I open a different one in the future, but I'm not sure). Account number was left blank.
Section one:
Part A: Effective date January 1 of this year
Option 2: I put today (the date of signature)
Section three:
Option 1: Yes
Suboption: I had (a) selected initially, I'm not sure if they crossed that out for the traditional application
Section eight:
Part A/Option 3/Suboption b. I left the rest as-is.
Section nine:
Sign

In-Plan Roth Rollover Adoption Agreement Amendment
Not applicable.

DESIGNATION OF SUCCESSOR PLAN ADMINISTRATOR/TRUSTEE
I did not fill this out. The advised me that since my wife is my beneficiary it's unnecessary. If my wife were killed with me (or dead), it would be up to the lawyers. I plan on drafting a will once our first child is born that will include instructions for this.

Roth application (4 signatures, minimum):
DIFFERENCES ONLY:
INDIVIDUAL 401(k) & ROTH INDIVIDUAL 401(k) APPLICATION
Account Type: Roth Individual 401(k) Plan
Sign section 5

Designation of Beneficiaries
Sign section 7

SUPER SIMPLIFIED INDIVIDUAL 401(K) PROFIT SHARING PLAN
Standardized Adoption Agreement

Employer information:
Name of Plan: They had me put "Roth 401k", but as above, that probably doesn't make sense. Plan Sequence Number was still 001 after checking with the back office.

Section one:
Part B: Initial plan effective date January 1 of this year
Effective date of restatement also January 1 of this year

Section three:
Option 1: Yes
Suboption (a): Yes

Section nine:
Sign

In-Plan Roth Rollover Adoption Agreement Amendment
Fill it out for this one, selecting your in-plan rollover options.

Conclusion:
This was a stressful and confusing process. More than once I thought of walking away and going to Fidelity down the street, but ultimately the in-service rollover option and Roth options were compelling for me (I expect a high tax bracket at retirement and may have a few years of lower taxes before that to convert). I did note that there was no specific option for in-service rollovers so I assume that's in there. I should go read the actual plan document now (after the fact because I'm foolish).
I also noticed an absence of deferred contribution election forms (saying how much to withhold), and any need to specify percentage of employer contribution. So just make sure that these follow the laws regarding contributions. They told me that bulk contributions are normal and to just indicate whether it's employEE or employER on the check. For this reason I'll probably be doing physical checks (1 for my EE, 1 for my ER, 1 for my wife's ER--no wife's EE in this one for right now).
Last edited by BusterMcTaco on Wed Aug 23, 2017 2:32 pm, edited 1 time in total.
Topic Author
BusterMcTaco
Posts: 364
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Re: ETrade Individual 401k - application and practical issues

Post by BusterMcTaco »

Plan document link.

Specifics of in-service withdrawal are in 5.01(C):
In-Service Distributions – Unless otherwise elected in the Adoption Agreement, if this is a profit sharing plan, a
Participant who is not otherwise eligible to receive a distribution of their Individual Account may elect to receive an
in-service distribution of all or part of the Vested portion of their Individual Account attributable to Employer
Contributions, other than those described in Plan Sections 5.01(A)(2) and 5.01(C)(2)(b), upon meeting one of the
following requirements.
a. Participant for Five or More Years – An Employee who has been a Participant in the Plan for five or more
years may withdraw up to the entire Vested portion of their Individual Account.
b. Participant for Less than Five Years – An Employee who has been a Participant in the Plan for less than five
years may withdraw only the amount that has been in their Individual Account attributable to Employer
Contributions for at least two full Plan Years, measured from the date such contributions were allocated.
5.01(A)(2) refers to "Elective Deferrals, Qualified Nonelective Contributions, Qualified Matching Contributions, and income allocable to each"
5.01(C)(2)(b) seems to refer entirely to Elective Deferrals and not Employer Contributions, so I'm not sure why it's relevant.

I was not aware that it was only Employer Contributions that could be rolled over in-service, but now I understand from reading other threads that this is by law that Elective Deferrals are not allowed to be rolled over in-service, so this is not surprising in retrospect.

I do think that "attributable to" includes gains on Employer contributions. I'm not sure how to effectively track this yet unless using a sub-account for employee/employer (or maybe ETrade tracks it for me?)
Topic Author
BusterMcTaco
Posts: 364
Joined: Tue Jul 11, 2017 6:36 pm

Re: ETrade Individual 401k - application and practical issues

Post by BusterMcTaco »

Final update, I think. I was able to open 4 different accounts under the same plan (well, 6 if you count my wife's). For me: Roth employEE, traditional employEE, traditional employER, and roll-in from existing IRA. Some phone reps said it couldn't be done but in the end it was just a matter of sending the application again for the 2 additional accounts I wanted, with a cover letter explaining what I was trying to do (so that they wouldn't be treated as duplicates). Persist and you shall succeed.
Spirit Rider
Posts: 13625
Joined: Fri Mar 02, 2007 2:39 pm

Re: ETrade Individual 401k - application and practical issues

Post by Spirit Rider »

I didn't see your initial post, but I have some observations.

First, it is not clear to me how many adoption agreements you signed. There is only one employer and there should only be one adoption agreement and plan. If you have more than one adoption agreement that could be a problem.

There should have been no need to have more than two accounts per person. One traditional 401k account for all traditional contributions including; employee deferrals, employer contributions and rollover contributions. One designated Roth account for Roth employee deferrals.

One small clarification. IRS regulations do not allow the in-service withdrawal/rollover of employee deferrals < age 59 1/2, but they are allowed >= age 59 1/2.
Topic Author
BusterMcTaco
Posts: 364
Joined: Tue Jul 11, 2017 6:36 pm

Re: ETrade Individual 401k - application and practical issues

Post by BusterMcTaco »

Spirit Rider wrote: Wed Nov 08, 2017 1:51 am First, it is not clear to me how many adoption agreements you signed. There is only one employer and there should only be one adoption agreement and plan. If you have more than one adoption agreement that could be a problem.
I agree I only should have signed 2 (the initial, and the restatement to add Roth, which is the way they handled the initial accounts). They did want a copy of the adoption agreements for every account application but I was assured they weren't opening another plan. I think it's poor form from them, but they insisted.
There should have been no need to have more than two accounts per person. One traditional 401k account for all traditional contributions including; employee deferrals, employer contributions and rollover contributions. One designated Roth account for Roth employee deferrals.
I prefer to keep things separate for easier tracking purposes.
One small clarification. IRS regulations do not allow the in-service withdrawal/rollover of employee deferrals < age 59 1/2, but they are allowed >= age 59 1/2.
EDIT: This is correct. I misunderstood your clarification earlier and had employEE/employER rules flipped in my head.
Last edited by BusterMcTaco on Wed Nov 08, 2017 1:56 pm, edited 1 time in total.
Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: ETrade Individual 401k - application and practical issues

Post by Spirit Rider »

BusterMcTaco wrote: Wed Nov 08, 2017 1:30 pm
Spirit Rider wrote: Wed Nov 08, 2017 1:51 am One small clarification. IRS regulations do not allow the in-service withdrawal/rollover of employee deferrals < age 59 1/2, but they are allowed >= age 59 1/2.
Are you certain? You are very knowledgable in this area, but I thought that this is only true for employER contributions. I think that employEE contributions can be rolled over into a traditional IRA without penalty or tax consequences:
Yes, I'm certain: When Can a Retirement Plan Distribute Benefits?

401(k), profit-sharing, and stock bonus plans
Employee elective deferrals (and earnings, except in a hardship distribution) -- the plan may permit a distribution when you:
  • terminate employment (by death, disability, retirement or other severance from employment);
  • reach age 59½; or
  • suffer a hardship.
Employer profit-sharing or matching contributions* -- the plan may permit a distribution of your vested accrued benefit when you:
  • terminate employment (by death, disability, retirement or other severance from employment);
  • reach the age specified in the plan (any age); or
  • suffer a hardship or experience another event specified in the plan.
*While not mentioned in this link by the IRS, a plan can also allow in-service withdrawals/rollovers of rollover contributions and after-tax employee contributions.
Topic Author
BusterMcTaco
Posts: 364
Joined: Tue Jul 11, 2017 6:36 pm

Re: ETrade Individual 401k - application and practical issues

Post by BusterMcTaco »

Of course, you are right. EmployER can be rolled out, not employEE. I thought you were trying to tell me neither could, but I see now you were just clarifying that employEE can be rolled out after age 59 1/2.

Editing my post above.
nyclon
Posts: 360
Joined: Fri Oct 02, 2015 5:30 pm

Re: ETrade Individual 401k - application and practical issues

Post by nyclon »

BusterMcTaco wrote: Mon Aug 21, 2017 4:14 pm Having just gone through applying for the ETrade Individual 401k (AKA Solo 401k) for myself and my spouse, I thought some guidance for those in the future might be useful. It was a harder process than I thought. It may also be useful in the future to have other practical issues addressed (contributions, roll overs, etc.), which this thread could contain.

Application link

If someone sees I did something wrong please let me know because I'll reach out proactively to get it corrected.

Generally: I live in a city with an ETrade office so I went in person to avoid any mistakes. The Financial Advisor who helped me was well intentioned and friendly but when it was clear he didn't know the answer to any of my questions, I insisted on speaking to the local operations person who had actually handled such applications before.

Specifically, things that threw me:
I just did this, so something may yet come back as completed wrong. I will update if so.

I chose to open both a traditional and a Roth 401k plan, for both myself and my wife (qualified joint venture). I ended up filling out 4 full applications: Traditional for me, Roth for me, Traditional for her, Roth for her. Her applications were identical to mine but just replaced all relevant personal information (and business title) to her own, and included her own beneficiaries (her contingent beneficiaries differ from my own as we don't yet have children).

Traditional application (3 signatures, minimum):
INDIVIDUAL 401(k) & ROTH INDIVIDUAL 401(k) APPLICATION
Account Type: Individual 401(k) Plan
Sign section 5
I did not want options trading, but you'd presumably sign section 6 if you do

Designation of Beneficiaries
Edit: you can only use whole percentages. I have 3 contingent beneficiaries and had to change it 33/33/34 instead of 33.3/33.3/33.4
Be sure to sign box 7 at the end (I thought this was specific to box 5 but obviously it is not). I did not need box 4 since my wife is my 100% primary beneficiary (and vice-versa).

SUPER SIMPLIFIED INDIVIDUAL 401(K) PROFIT SHARING PLAN
Standardized Adoption Agreement

I'm guessing I only needed one of these for each of the Traditional/Roth plans. They had my wife complete and sign, too. I don't think that was strictly necessary.
Employer information:
Name of Plan: They had me put "Traditional 401k" before realizing that the Roth application would use the same plan sequence number. We left this. I don't think it makes sense in retrospect, and I'll let you know if anyone says anything. Plan Sequence Number was 001 (this is my first ever solo 401k, I think it might have to increment if I open a different one in the future, but I'm not sure). Account number was left blank.
Section one:
Part A: Effective date January 1 of this year
Option 2: I put today (the date of signature)
Section three:
Option 1: Yes
Suboption: I had (a) selected initially, I'm not sure if they crossed that out for the traditional application
Section eight:
Part A/Option 3/Suboption b. I left the rest as-is.
Section nine:
Sign

In-Plan Roth Rollover Adoption Agreement Amendment
Not applicable.

DESIGNATION OF SUCCESSOR PLAN ADMINISTRATOR/TRUSTEE
I did not fill this out. The advised me that since my wife is my beneficiary it's unnecessary. If my wife were killed with me (or dead), it would be up to the lawyers. I plan on drafting a will once our first child is born that will include instructions for this.

Roth application (4 signatures, minimum):
DIFFERENCES ONLY:
INDIVIDUAL 401(k) & ROTH INDIVIDUAL 401(k) APPLICATION
Account Type: Roth Individual 401(k) Plan
Sign section 5

Designation of Beneficiaries
Sign section 7

SUPER SIMPLIFIED INDIVIDUAL 401(K) PROFIT SHARING PLAN
Standardized Adoption Agreement

Employer information:
Name of Plan: They had me put "Roth 401k", but as above, that probably doesn't make sense. Plan Sequence Number was still 001 after checking with the back office.

Section one:
Part B: Initial plan effective date January 1 of this year
Effective date of restatement also January 1 of this year

Section three:
Option 1: Yes
Suboption (a): Yes

Section nine:
Sign

In-Plan Roth Rollover Adoption Agreement Amendment
Fill it out for this one, selecting your in-plan rollover options.

Conclusion:
This was a stressful and confusing process. More than once I thought of walking away and going to Fidelity down the street, but ultimately the in-service rollover option and Roth options were compelling for me (I expect a high tax bracket at retirement and may have a few years of lower taxes before that to convert). I did note that there was no specific option for in-service rollovers so I assume that's in there. I should go read the actual plan document now (after the fact because I'm foolish).
I also noticed an absence of deferred contribution election forms (saying how much to withhold), and any need to specify percentage of employer contribution. So just make sure that these follow the laws regarding contributions. They told me that bulk contributions are normal and to just indicate whether it's employEE or employER on the check. For this reason I'll probably be doing physical checks (1 for my EE, 1 for my ER, 1 for my wife's ER--no wife's EE in this one for right now).
Interesting perspective - contrasts with mine, which was a breeze. Etrade sent me the docs, told me exactly which sections I needed to fill out and I was able to execute and fax it back to them within one hour.

I was so impressed by the ease of execution and organization on their side (and thankful).
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Earl Lemongrab
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Re: ETrade Individual 401k - application and practical issues

Post by Earl Lemongrab »

If you don't have separate accounting for the employer and rollover contributions, would that prevent in-service distribution of those amounts?
Topic Author
BusterMcTaco
Posts: 364
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Re: ETrade Individual 401k - application and practical issues

Post by BusterMcTaco »

Earl Lemongrab wrote: Wed Nov 08, 2017 3:07 pm If you don't have separate accounting for the employer and rollover contributions, would that prevent in-service distribution of those amounts?
My understanding (and I'm by no means an expert) is that you can also track contributions separately, like in a spreadsheet, and then apply some percentage formula. That sounded like a lot of effort because it would require tracking how much you contributed and when, and I believe the value of the account at the time.
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EricaInvestPink
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Re: ETrade Individual 401k - application and practical issues

Post by EricaInvestPink »

I know this thread is a little old but I’m going through this process right now. I opened the individual 401k through etrade for my side 1099 income successfully and was able to make a couple contributors this year. What I didn’t realize however was they went through as employER contributions rather than employEE!!! Is there an easy way to recharacterize them?! Or do I need to open a new account ??? :oops:
Topic Author
BusterMcTaco
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Re: ETrade Individual 401k - application and practical issues

Post by BusterMcTaco »

It doesn't truly matter what etrade shows as long as your own records are correct. They categorize all of my contributions as deferrals, but I have a separate account for employer contributions so know what's what.
nerdymarketer
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Re: ETrade Individual 401k - application and practical issues

Post by nerdymarketer »

Call them up and ask them to recategorize them. IIRC, I had to do this a few years ago and it was very straightforward.
loveapplejuice888
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Re: ETrade Individual 401k - application and practical issues

Post by loveapplejuice888 »

BusterMcTaco wrote: Wed Nov 08, 2017 3:21 pm
Earl Lemongrab wrote: Wed Nov 08, 2017 3:07 pm If you don't have separate accounting for the employer and rollover contributions, would that prevent in-service distribution of those amounts?
My understanding (and I'm by no means an expert) is that you can also track contributions separately, like in a spreadsheet, and then apply some percentage formula. That sounded like a lot of effort because it would require tracking how much you contributed and when, and I believe the value of the account at the time.
i am in the process of opening solo 401k and found this amazing thread. It sounds like you were able to perform mega backdoor roth in etrade by making a non-deductible non-roth contribution to the "traditional employER account" and then do an in-service distribution to the "Roth employEE account". Am I understanding correctly?

Also - for mega backdoor roth, if I already have a W2-401k account and max out $19,500, can I still contribute $57,000 to the traditional employER account and perform a mega backdoor roth in solo 401k? If including my spouse, does it mean I can contribute up to $114,000 to the traditional employER account? Thank you!
Last edited by loveapplejuice888 on Sun Oct 11, 2020 7:44 pm, edited 2 times in total.
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Re: ETrade Individual 401k - application and practical issues

Post by LadyGeek »

loveapplejuice888, Welcome! FYI - You and EricaInvestPink are bumping a 2017 thread.
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Topic Author
BusterMcTaco
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Joined: Tue Jul 11, 2017 6:36 pm

Re: ETrade Individual 401k - application and practical issues

Post by BusterMcTaco »

loveapplejuice888 wrote: Sun Oct 11, 2020 7:33 pm
BusterMcTaco wrote: Wed Nov 08, 2017 3:21 pm
Earl Lemongrab wrote: Wed Nov 08, 2017 3:07 pm If you don't have separate accounting for the employer and rollover contributions, would that prevent in-service distribution of those amounts?
My understanding (and I'm by no means an expert) is that you can also track contributions separately, like in a spreadsheet, and then apply some percentage formula. That sounded like a lot of effort because it would require tracking how much you contributed and when, and I believe the value of the account at the time.
i am in the process of opening solo 401k and found this amazing thread. It sounds like you were able to perform mega backdoor roth in etrade by making a non-deductible non-roth contribution to the "traditional employER account" and then do an in-service distribution to the "Roth employEE account". Am I understanding correctly?

Also - for mega backdoor roth, if I already have a W2-401k account and max out $19,500, can I still contribute $57,000 to the traditional employER account and perform a mega backdoor roth in solo 401k? If including my spouse, does it mean I can contribute up to $114,000 to the traditional employER account? Thank you!
I did not set up a mega backdoor Roth. I do not think E-Trade's plan allows it, but it's possible that has changed. Specifically, I don't think you can do after tax contributions.
Spirit Rider
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Re: ETrade Individual 401k - application and practical issues

Post by Spirit Rider »

BusterMcTaco wrote: Sun Oct 11, 2020 8:47 pm I did not set up a mega backdoor Roth. I do not think E-Trade's plan allows it, but it's possible that has changed. Specifically, I don't think you can do after tax contributions.
To my knowledge; E-Trade, Fidelity, Schwab, TD Ameritrade and Vanguard still do not support Employee after-tax contributions in their one-participant 401k plans.

What is unique about E-Trade of those plans, is that they do support an in-plan Roth rollover (IRR). This allows you to do taxable rollovers of employer contributions, pre-tax traditional deferrals or previous pre-tax rollover contributions to the designated Roth account.
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