Vanguard SEP-IRA rollover for Roth IRA purposes

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DameTime
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Joined: Mon Jul 08, 2019 8:04 pm

Vanguard SEP-IRA rollover for Roth IRA purposes

Post by DameTime » Tue Aug 13, 2019 9:03 am

Sorry for this rather specific, but likely beginner level question. Could someone please confirm for me that I am thinking about this reasonably?

My wife has about 100k in a Vanguard SEP-IRA which she contributed to over the years with pre-tax dollars when she was a 1099 contractor. She has her own LLC. I think we realize she should have opened a i401k or Solo 401k instead of the SEP but water under the bridge now. She is now employed and has access to a 403(b) through her current employer. In order for us to fund a backdoor Roth IRA this year and for the foreseeable future, we need to get rid of the SEP-IRA per the pro rata rule. She otherwise has a Vanguard Roth IRA account, which cannot accept a SEP-IRA rollover without a tax hit.

Am I correct that these are our options and that neither would be a taxable event?

1) Roll the Vanguard SEP-IRA to her Fidelity 403(b)
2) Given her LLC, open a Vanguard Individual 401(k) or Solo 401(k) and roll the SEP-IRA there -- Not sure if it matters but she has had minimal income from her LLC since 2018.

Finally, if option 2 is a possibility, sticking with Vanguard would be our preference. What are considerations to help choose between the i401k and the solo 401k?

Thanks very much in advance! This forum has been a tremendous resource and I am learning more every day.

megabad
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Joined: Fri Jun 01, 2018 4:00 pm

Re: Vanguard SEP-IRA rollover for Roth IRA purposes

Post by megabad » Tue Aug 13, 2019 12:14 pm

DameTime wrote:
Tue Aug 13, 2019 9:03 am
Am I correct that these are our options and that neither would be a taxable event?

1) Roll the Vanguard SEP-IRA to her Fidelity 403(b)
2) Given her LLC, open a Vanguard Individual 401(k) or Solo 401(k) and roll the SEP-IRA there -- Not sure if it matters but she has had minimal income from her LLC since 2018.
Makes sense to me I think. I would prefer Option 1 if the costs are low in 403b. If not, I would do 2.

Finally, if option 2 is a possibility, sticking with Vanguard would be our preference. What are considerations to help choose between the i401k and the solo 401k?
Not sure I understand. These are the same thing right? We are just talking about single participant 401k plan right?

mhalley
Posts: 7257
Joined: Tue Nov 20, 2007 6:02 am

Re: Vanguard SEP-IRA rollover for Roth IRA purposes

Post by mhalley » Tue Aug 13, 2019 12:27 pm

Vanguard still doesn’t allow rollovers to its solo 401k, so look at fidelity or Schwab. The amount of income doesn’t matter, as long as there is some.
https://thefinancebuff.com/vanguard-sol ... m-ira.html

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Vanguard SEP-IRA rollover for Roth IRA purposes

Post by Spirit Rider » Tue Aug 13, 2019 2:05 pm

401(c) defines a self-employed individual eligible to adopt a 401k if they have self-employed earned income in the current or any prior year.

Topic Author
DameTime
Posts: 3
Joined: Mon Jul 08, 2019 8:04 pm

Re: Vanguard SEP-IRA rollover for Roth IRA purposes

Post by DameTime » Tue Aug 13, 2019 8:11 pm

Thanks everyone. Since Vanguard won't accept a rollover, it sounds like a rollover to Fidelity, where she already has an established 403(b) with good fund options is going to be the best bet.

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