Employee Fiduciary Solo 401(k) with MegaBackdoor Roth and TPA - Discussion

[ICMoney]

In 2019 I engaged Employee Fiduciary to become the service provider for my solo 401(k) in order to add plan features to execute Mega Backdoor Roth. In case other bogleheads may be looking into such an option for their own solo 401(k)s, I wanted to summarize my experience and offer a space for discussion of Employee Fiduciary i401(k)s with Mega Backdoor Roth and TPA (third party administration and recordkeeping services).

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Executive Summary: Employee Fiduciary's solo 401(k) allows for Mega Backdoor Roth to be executed for a $500/year plan fee (plus $500 plan establishment fee), which includes TPA and recordkeeping services. In-plan Roth rollovers are $100 each and rollovers of voluntary after-tax contributions to a Roth IRA are $50 each.

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I contacted Employee Fiduciary via their website to inquire if their solo 401(k) plans allowed after-tax (not Roth) contributions with in-service rollovers. Surprisingly, the representative who responded said yes, their solo 401(k) allows for mega backdoor Roth to be executed (I never used the term mega backdoor Roth, the rep used it first - so clearly they seem to be trying to get into this space). After a few weeks of questions and which EF was very responsive to, I signed a service agreement to transfer my solo 401(k) from Vanguard to Employee Fiduciary.

Many of the forms Employee Fiduciary had me sign were geared more to small business 401(k) plans, but since I am comfortable with what to look for in a plan document for mega backdoor Roth and other 401(k) concepts, I was able to question some of the forms (i.e. needing to obtain a fidelity bond, etc.). Overall it just seemed as if this is a relatively new offering for them and they may still be updating their forms/onboarding process for mega backdoor Roth solo 401(k)s. For someone less familiar with 401(k) plans and mega backdoor Roth in general, I could see how this process may be intimidating though I imagine the EF reps would be able to walk you through it.

Employee Fiduciary allows just about any mutual fund to be offered in their solo 401(k), though there is a limit to the number of funds offered. I filled my plan's fund offerings with a bunch of Vanguard Admiral index funds.

Vanguard, who I had my existing solo 401(k) at, was the hardest to deal with in all of this. The Vanguard phone reps/supervisors were trying to direct me to forms to terminate my solo 401(k) despite me reassuing them I was not trying to terminate the plan, just change service provider. When asking them for the Vanguard solo 401(k) plan document, the phone rep didn't know what I meant by "plan document" (in case anyone runs into this, it is in the Vanguard solo 401(k) adoption agreement that is about 150 pages long). Weeks later, my Employee Fiduciary contact found a simple form on EF letterhead and suggested I fill it out and send to Vanguard (form was called Individual 401(k) Asset Transfer). I got this form medallion-signed (which wasn't indicated on the form, but I did it anyway in case it would help Vanguard to transfer the assets), overnighted to Vanguard, and they executed the transfer to EF that same day. It took about one week for my solo 401(k) assets to arrive to EF, and two more business days to post to my EF solo 401(k). Note to other bogleheads - do NOT terminate your solo 401(k) plan with an existing service provider during this process as it will cause a bunch of problems for you!

For mega backdoor Roth, EF calls the after-tax (non-Roth) contributions "voluntary after-tax contributions". The EF rep walked me through over the phone the process of making the voluntary after-tax contribution. They allow in-plan Roth rollovers ($100 fee), but I chose to roll my voluntary after-tax contributions out of the plan and to my Roth IRA immediately after making the voluntary after-tax contribution ($50 fee). My reasons for this were to have more flexibility with the funds being out of the plan, the slightly lower fee (note, there is a 2 basis point quarterly asset fee for the EF solo 401(k)), and to further delay form 5500 filings for the plan.

I emailed my EF rep the rollover paperwork (form = Participant Distribution Form) the same day the voluntary-after tax contributions posted to my EF 401(k). The voluntary after-tax contributions were sold the next day, but the check wasn't cut until five business days later. They mailed the check to me (VFTC FBO ICMoney Roth IRA), despite my request to send it directly to Vanguard. To make sure Vanguard knew what to do with it, I filled out a transfer form online to send in with the check. (https://investor.vanguard.com/account-t ... sfer-money) The total time from the time the assets sold from my solo 401(k) and were invested in my Vanguard Roth IRA was 3 weeks.

My 1099R just arrived for the mega backdoor Roth rollover. The amount in box 1 showed as $36954, which is the $37K mega backdoor Roth contribution, less the $50 rollover fee, plus $4 of returns for one day being invested. Box 2a was $0 and box 7 code G.

All in all, it's been nice to have this feature in my solo 401(k) and feel like the level of service I've received from EF is well worth the annual plan fee. I am quite knowledgable about 401(k)s but don't trust myself to administer a plan myself, thus wanted a TPA for this.

If anyone has questions please post them here, as well as other experiences with EF solo 401(k)s.

Best, ICM

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ETA: One year update: viewtopic.php?p=5765664#p5765664

[tfb]

In 2019 I engaged Employee Fiduciary to become the service provider for my solo 401(k) in order to add plan features to execute Mega Backdoor Roth. In case other bogleheads may be looking into such an option for their own solo 401(k)s, I wanted to summarize my experience and offer a space for discussion of Employee Fiduciary i401(k)s with Mega Backdoor Roth and TPA (third party administration and recordkeeping services).

You did it the right way. Thank you for sharing.

[GoldPressedLatinum]

@ICMoney Thanks for posting this.

Coincidentally, I just mailed in the forms to create my solo 401k with Fidelity today for my sole proprietorship. (I'm the owner and only employee.)

Question: I didn't see anything in my paperwork about selecting funds within my plan. Do I do that later after it's created? Also, I didn't see anything about the $500 fees you're talking about. Is that only for mega back doors?

[Spirit Rider]

@ICMoney Thanks for posting this.

Coincidentally, I just mailed in the forms to create my solo 401k with Fidelity today for my sole proprietorship. (I'm the owner and only employee.)

Question: I didn't see anything in my paperwork about selecting funds within my plan. Do I do that later after it's created? Also, I didn't see anything about the $500 fees you're talking about. Is that only for mega back doors?

With the exception of Vanguard, all the mainstream low-cost one-participant 401k providers such as Fidelity charge no administrative fees. Vanguard charges $20/fund/participant/year unless you are a Voyager, Voyager Select, Flagship, or Flagship Select client.

At Fidelity and the other low-cost mainstream one-participant 401k providers except for Vanguard. You have a brokerage account and once you deposit the contribution. You can purchase any marketable security your want.

The $500 fee being referred to is the administration fee for an Employee Fiduciary one-participant 401k plan supporting MBR.

[ICMoney]

@ICMoney Thanks for posting this.

Coincidentally, I just mailed in the forms to create my solo 401k with Fidelity today for my sole proprietorship. (I'm the owner and only employee.)

Question: I didn't see anything in my paperwork about selecting funds within my plan. Do I do that later after it's created? Also, I didn't see anything about the $500 fees you're talking about. Is that only for mega back doors?

Spirit Rider is correct. You will not have a $500 fee for the standard Fidelity solo 401k offering, but you will not be able to do mega backdoor Roth in the Fidelity solo 401k either. Mega backdoor Roth requires a custom solo 401k plan of which there are various options, all of which to my knowledge charge some sort of fee.

Best, ICM

[GoldPressedLatinum]

ICMoney & Spirit Rider:

Thank you both for the clarification. Mine is a small side business, in addition to my regular W2 job. In addition to making small employER contributions for myself, I'm planning to transfer my existing tIRA accounts into the s401k to allow me to do regular back door Roth conversions (I'm going to hit the cutoff income in the next year or two).

[jacoavlu]

Thanks for sharing.

Given the amount you’re talking about, I assume you also made a deferral contribution to the plan for $19k?

An added bonus for some people wanting to pursue this would be if Employee Fiduciary would assist in calculating an accurate allowed contribution amount. Not so difficult when you have enough compensation to support a max contribution.

I always refer people to the tfb spreadsheet, but it would be good to know EF could help as well, for a paying customer.

[ef11]

Great discussion here.

EF shows their Solo 401k costs $100 to establish and $200 per year + 0.08% of plan assets. I'm assuming they charge $500 to establish and $500 per year IF you add the Mega Backdoor Roth capabilities (let's be honest, most people setting this up would want this). They would still be charging 0.08% on assets in the plan as well, I would think. That's nothing initially, but in the future could definitely add up.

I use MySolo401k.net for my Solo 401k. Initial year setup fee is $550 which includes the MBD Roth and first year of administration (1099Rs, 5500 if applicable, etc).

They charge $125 per year for administration after the first year. I pay nothing for any rollovers, but I obviously handle that on my own and report them to MySolo401k via email.

I setup my three Non-prototype accounts at Fidelity, Pre-tax, After-tax, and Roth and manage contributions and rollovers myself. MySolo401k will calculate the contribution amounts as well as myself and my CPA.

Now, MySolo401k does not offer true TPA services, which I know Spirit Rider will advise most people should have. If you have a million dollar Solo 401k though, your essentially going to pay $1,300 per year plus rollover fees.

[Saving$]

Good to know. Thanks for posting.

In the case of a regular 401k (non-solo), the employer may not want to ante up the differential between max employee contribution and combined limit as an employer contribution. The MBR option allows the employee to increase the employee contributions.
But in a solo, the employee and the employer are sort of the same...

Given that you have a Solo 401k, wouldn't any Solo 401k provider with a Roth option accomplish the same thing?
A regular solo 401k with Roth option allows both employee and employer contributions. Once you hit the max employee contributions, you just contribute the rest as employer contributions, and the combined limit is the same as the limit on the MBR.
In the case of a Solo 401k, what benefit does the MBR option provide that a Solo 401k with Roth option would not provide?

[tfb]

A regular solo 401k with Roth option allows both employee and employer contributions. Once you hit the max employee contributions, you just contribute the rest as employer contributions, and the combined limit is the same as the limit on the MBR.
In the case of a Solo 401k, what benefit does the MBR option provide that a Solo 401k with Roth option would not provide?

If you have $300k in self-employment income you can easily hit the maximum with employer contributions + elective deferrals. If you only have $100k in self-employment income, it's not possible without MBR.

[jacoavlu]

Also. Roth deferral is limited to $19.5k in 2020. EmployER contributions must be pretax

With a MBR option you create “bonus” Roth space that you wouldn’t otherwise have. With MBR one could get $57k into Roth in 2020, as long as compensation amount supports it.

[Saving$]

A regular solo 401k with Roth option allows both employee and employer contributions. Once you hit the max employee contributions, you just contribute the rest as employer contributions, and the combined limit is the same as the limit on the MBR.
In the case of a Solo 401k, what benefit does the MBR option provide that a Solo 401k with Roth option would not provide?

If you have $300k in self-employment income you can easily hit the maximum with employer contributions + elective deferrals. If you only have $100k in self-employment income, it's not possible without MBR.

So the MBR contribution is not limited by a percentage of income? ie you could put 100% of your income into the 401k/MBR up to the limits ($57k/$63.5k)?

[niceguy7376]

Good to know. Thanks for posting.

In the case of a regular 401k (non-solo), the employer may not want to ante up the differential between max employee contribution and combined limit as an employer contribution. The MBR option allows the employee to increase the employee contributions.
But in a solo, the employee and the employer are sort of the same...

Given that you have a Solo 401k, wouldn't any Solo 401k provider with a Roth option accomplish the same thing?
A regular solo 401k with Roth option allows both employee and employer contributions. Once you hit the max employee contributions, you just contribute the rest as employer contributions, and the combined limit is the same as the limit on the MBR.
In the case of a Solo 401k, what benefit does the MBR option provide that a Solo 401k with Roth option would not provide?

For any 401k (solo or non-solo), Trad + Roth COMBINED EmployEE contributions are 19.5k for 2020.
EmployER contributions are always to Traditional component.
For Solo 401k, EmployER contributions are limited to 25% of Employee Salary . So to hit the limit of 57K, you need to have income of 140Kish min.
With a MBR, even with a salary of 100K, you can contribute 19.5K as EmployEE, 25K as EmployER and the remaining from EmployEE payroll to hit that 57K limit.

[crystalbank]

Thanks for the detailed report. I'm still dragging my feet to transfer my Solo 401k out of Vanguard and execute a MBR but keep procrastinating it, partly due to the complexity involved.

EDIT: Looks like EF charges a 0.08% of AUM fee? If so that is a no go for me.

[ICMoney]

Thanks for sharing.

Given the amount you’re talking about, I assume you also made a deferral contribution to the plan for $19k?

An added bonus for some people wanting to pursue this would be if Employee Fiduciary would assist in calculating an accurate allowed contribution amount. Not so difficult when you have enough compensation to support a max contribution.

I always refer people to the tfb spreadsheet, but it would be good to know EF could help as well, for a paying customer.

Correct, I made $19K in employee Roth deferrals while my solo 401(k) was still at Vanguard in addition to the $37K in voluntary after-tax contributions at Employee Fiduciary.

Employee Fiduciary did not assist in calculating my ability to make this level of contributions (I'm not sure if they are able to do this or not, but I was certain my 1099 income of ~$70K gross of self-employment taxes was enough). I agree tfb spreadsheet should be consulted to determine the amount that can be contributed to a solo 401(k).

Best, ICM

[retiredjg]

Executive Summary: Employee Fiduciary's solo 401(k) allows for Mega Backdoor Roth to be executed for a $500/year plan fee (plus $500 plan establishment fee), which includes TPA and recordkeeping services. In-plan Roth rollovers are $100 each and rollovers of voluntary after-tax contributions to a Roth IRA are $50 each.

This is good news and it is great to see somebody report on how to get this done right! I do hope someone offers some competition in this space soon so that maybe the price will come down some.

Thanks for posting your experience.

[Luckywon]

Good to know. Thanks for posting.

In the case of a regular 401k (non-solo), the employer may not want to ante up the differential between max employee contribution and combined limit as an employer contribution. The MBR option allows the employee to increase the employee contributions.
But in a solo, the employee and the employer are sort of the same...

Given that you have a Solo 401k, wouldn't any Solo 401k provider with a Roth option accomplish the same thing?
A regular solo 401k with Roth option allows both employee and employer contributions. Once you hit the max employee contributions, you just contribute the rest as employer contributions, and the combined limit is the same as the limit on the MBR.
In the case of a Solo 401k, what benefit does the MBR option provide that a Solo 401k with Roth option would not provide?

For any 401k (solo or non-solo), Trad + Roth COMBINED EmployEE contributions are 19.5k for 2020.
EmployER contributions are always to Traditional component.
For Solo 401k, EmployER contributions are limited to 25% of Employee Salary . So to hit the limit of 57K, you need to have income of 140Kish min.
With a MBR, even with a salary of 100K, you can contribute 19.5K as EmployEE, 25K as EmployER and the remaining from EmployEE payroll to hit that 57K limit.

I think one other benefit of the MBR, applicable to some solo businesses who are getting a 199A deduction, is that the MBR, which starts with an aftertax contribution, does not reduce the individual's 199A deduction. Pretax contributions do. So even for those eligible to contribute the plan limit, some may want to consider whether to shift pretax contributions to MBR, as they are getting a "discount" on the tax paid on the aftertax dollars they are contributing.

[cookymonster]

I have seen National Employee Benefit Services listed as another TPA in tfb's site. No experience with them.

[ICMoney]

Great discussion here.

EF shows their Solo 401k costs $100 to establish and $200 per year + 0.08% of plan assets. I'm assuming they charge $500 to establish and $500 per year IF you add the Mega Backdoor Roth capabilities (let's be honest, most people setting this up would want this). They would still be charging 0.08% on assets in the plan as well, I would think. That's nothing initially, but in the future could definitely add up.

Thanks for pointing the cost difference out, ef11. Since EF considers the mega backdoor Roth version of the solo 401(k) a "custom" plan, the fees are higher for the MBR version than the generic solo 401(k) plan that's advertised on their website.

I will also offer that one of the EF reps mentioned something along the lines of "most people with these plans haven't done what you're doing", so either they haven't sold many of these plans yet or haven't sold them to boglehead-types that are looking to maximize 199A deductions/mega backdoor Roth... Granted, I'd done MBR for a couple years at MegaCorp prior to this experience, so knew very well what I was doing in order to maximize this opportunity.

Best, ICM

[ICMoney]

Thanks for the detailed report. I'm still dragging my feet to transfer my Solo 401k out of Vanguard and execute a MBR but keep procrastinating it, partly due to the complexity involved.

EDIT: Looks like EF charges a 0.08% of AUM fee? If so that is a no go for me.

Correct, they have a 0.08% AUM fee, but if you are rolling the voluntary-after tax contributions out of the plan and to your Roth IRA immediately, you won't be paying that fee on the assets rolled out of the plan. I suppose this could cause one to *prefer* voluntary after-tax contributions over employee deferrals just to get them out of the plan?

Best, ICM

[jacoavlu]

8 bps is what EF charges as a fee for all their 401k plans, and some or perhaps most all of that is likely pass through costs of custodial and directed trustee services as those assets are held with Matrix Trust Company, independent from EF

[ef11]

A regular solo 401k with Roth option allows both employee and employer contributions. Once you hit the max employee contributions, you just contribute the rest as employer contributions, and the combined limit is the same as the limit on the MBR.
In the case of a Solo 401k, what benefit does the MBR option provide that a Solo 401k with Roth option would not provide?

If you have $300k in self-employment income you can easily hit the maximum with employer contributions + elective deferrals. If you only have $100k in self-employment income, it's not possible without MBR.

So the MBR contribution is not limited by a percentage of income? ie you could put 100% of your income into the 401k/MBR up to the limits ($57k/$63.5k)?

MBR contribution is NOT limited by a percentage of income. Only that your total contributions to the plan cannot exceed either:
- Sole Proprietor = Line 31 of Schedule C Net Self-Employment Profit
- S-Election with W2 Salary = Compensation (I believe box 1 of W2, would include salary + HSA + health premiums if done correctly I believe)

If the number is $57,000 or greater ($63,500 if 50+) then you can max out the Solo 401k.

I feel I have an ideal situation with an LLC Filing an S-Election and a Solo 401k that allows for MBR:
The lower W2 salary means I can contribute much less in tax-deductible contributions, around $33,000.
Then I can fill up the remaining $24,000 with MBR money that grows tax-free for life.
All while still paying significantly less in taxes than being a Sole Proprietor.

This means I pay LESS in taxes in order to get MORE in Roth, a real home run.
I save about $5,000 a year including tax savings, payroll expenses, etc
And I get $24,000 in Roth contributions vs. about $2,500 as a Sole Proprietor

[southerndoc]

I've never really understood the Megabackdoor Roth Solo 410(k).

So with the way you've set this up with Employee Fudiciary, you can contribute employee contributions up to $19,500 in either a traditional or Roth Solo 401(k). You can contribute your employer contributions (up to max of $57,000) as either pretax or posttax. If you contribute posttax, you can immediately convert into the Roth account?

You mentioned Fidelity is your custodian. How many subaccounts do you have under your Solo 401(k)?

This is definitely tempting as I would love to be able to put $57,000 per year + $6,000 per year IRA into Roth contributions (MBR + Backdoor Roth IRA).

[jacoavlu]

^^^

No. The after tax contributions are employee contributions. Yes they can be immediately rolled over to Roth. Hence the term “backdoor Roth”. Add “mega” because the numbers are larger.

For a solo 401k the MBR requires a paid plan such as that offered by Employee Fiduciary.

[southerndoc]

I'm confused. What is the purpose of a megabackdoor Roth Solo 401(k) if you can only contribute employee contributions? I can make 100% of my employee contributions as a Roth Solo 401(k) contribution now with Vanguard.

[retiredjg]

I'm confused. What is the purpose of a megabackdoor Roth Solo 401(k) if you can only contribute employee contributions? I can make 100% of my employee contributions as a Roth Solo 401(k) contribution now with Vanguard.

You contribute your $19.5k of "elective deferrals" to traditional/Roth 401k. You make your employer contributions, let's say $10k, to the pre-tax account. So there are $57k minus $19.5k minus $10k = $27.5 dollars of space left in the 401k for that year.

You fill all or as much of that $27.5k space as you can with after tax dollars and roll it to Roth....meaning that you get $27.5k into Roth IRA by putting money into your 401k.

Terminology: the $19.5k is not "employee contributions" even though the employee makes the contribution. The 19.5K is called "elective deferrals". The $27.5k in this example is called "employee contributions" meaning "employee contributions to an after tax account".

In other words, the terminology is different from what people think it is.

[southerndoc]

So the after tax contributions are reduced by the elective salary deferrals and employer contributions? Basically, as an independent contractor, I could contribute $19,500 as elective deferrals and $37,500 ($57,000-19,500) as after tax contributions as long as I don't make any employer contributions. Those after tax contributions could be rolled into a Roth IRA or into a Roth Solo 401(k) to effectively allow me to put $57,000 into a Roth.

If I make $19,500 in salary deferrals plus $10,000 in employer contributions, then the most after tax I can contribute is $27,500 that can be moved into a Roth.

I think I follow it now. The Backdoor Roth has had a legal opinion that it doesn't violate the step doctrine. Is there any possibility the IRS could say this isn't allowed? I'm assuming not since this is more formally written in plan documents that the Department of Labor/IRS has approved?

Are there any third-party administrators that allow this with Vanguard as the custodian?

[jacoavlu]

I have a workplace 401k which I max with pretax deferral and profit sharing

I have unrelated 1099 income, let’s say $30k per year

With a typical free solo 401k I could make an employer pretax contribution to my solo 401k of about $6k. That’s it

With a MBR compatible plan I can make an (essentially) $30k after tax contribution which I then rollover to Roth. By having a MBR compatible solo 401k I’ve created $30k bonus Roth space.

[jacoavlu]

southern doc you can “visualize” the numbers using tfb’s spreadsheet (The Finance Buff) here

https://docs.zoho.com/sheet/published.d ... 140934898a


You would have to twist someone’s arm to use Vanguard as custodian. They only allowed pooled accounts so you can’t setup the necessary separate pretax, Roth, and after tax Trust subaccounts.

Plus, it’s unnecessary to use Vanguard. Use Fidelity or E*TRADE or Schwab, and invest in Vanguard funds or ETFs if that’s what you want.

[Spirit Rider]

MBR contribution is NOT limited by a percentage of income. Only that your total contributions to the plan cannot exceed either:
- Sole Proprietor = Line 31 of Schedule C Net Self-Employment Profit
- S-Election with W2 Salary = Compensation (I believe box 1 of W2, would include salary + HSA + health premiums if done correctly I believe)

If the number is $57,000 or greater ($63,500 if 50+) then you can max out the Solo 401k.

Keep in mind that the annual addition (2020 limit = $57K) is not extended except by employee catch-up contributions. The employee catch-up contribution (2020 limit = $6.5K) is not included in the annual addition limit, can only be contributed after the employee deferral (2020 limit = $19.5K) is maximized, and can only be pre-tax traditional or designated Roth contributions.

[Luckywon]

MBR contribution is NOT limited by a percentage of income. Only that your total contributions to the plan cannot exceed either:
- Sole Proprietor = Line 31 of Schedule C Net Self-Employment Profit
- S-Election with W2 Salary = Compensation (I believe box 1 of W2, would include salary + HSA + health premiums if done correctly I believe)

If the number is $57,000 or greater ($63,500 if 50+) then you can max out the Solo 401k.

Keep in mind that the annual addition (2020 limit = $57K) is not extended except by employee catch-up contributions. The employee catch-up contribution (2020 limit = $6.5K) is not included in the annual addition limit, can only be contributed after the employee deferral (2020 limit = $19.5K) is maximized, and can only be pre-tax traditional or designated Roth contributions.

Sorry to be asking something perhaps that should be clear already but does this mean that for those age 50 and above the 2020 maximum aftertax contribution for those over 50 is $57k and in addition a catch up deferral contribution of $6.5k could be made?

[Spirit Rider]

MBR contribution is NOT limited by a percentage of income. Only that your total contributions to the plan cannot exceed either:
- Sole Proprietor = Line 31 of Schedule C Net Self-Employment Profit
- S-Election with W2 Salary = Compensation (I believe box 1 of W2, would include salary + HSA + health premiums if done correctly I believe)

If the number is $57,000 or greater ($63,500 if 50+) then you can max out the Solo 401k.

Keep in mind that the annual addition (2020 limit = $57K) is not extended except by employee catch-up contributions. The employee catch-up contribution (2020 limit = $6.5K) is not included in the annual addition limit, can only be contributed after the employee deferral (2020 limit = $19.5K) is maximized, and can only be pre-tax traditional or designated Roth contributions.

Sorry to be asking something perhaps that should be clear already but does this mean that for those age 50 and above the 2020 maximum aftertax contribution for those over 50 is $57k and in addition a catch up deferral contribution of $6.5k could be made?

No, the only way to maximize the employee catch-up contribution is to make the maximum employee deferral.

If you want to maximize your total contributions. Your maximum employee after-tax contribution = $57K - $19.5K employee deferrals - employer contributions, or $37.5K - employer contributions. Then you are additionally able to make the $6.5K catch-up contribution for a total of $63.5K.

If you make employee deferrals of < $19.5K, your maximum employee after-tax contributions = $57K - any employee deferrals - employer contributions with a maximum of $57K total contributions.

This is why it is misleading to refer to a $63.5K contribution limit. The relevant limit to employee after-tax contributions is always the annual addition limit. The catch-up contribution limit is irrelevant.

[Luckywon]

MBR contribution is NOT limited by a percentage of income. Only that your total contributions to the plan cannot exceed either:
- Sole Proprietor = Line 31 of Schedule C Net Self-Employment Profit
- S-Election with W2 Salary = Compensation (I believe box 1 of W2, would include salary + HSA + health premiums if done correctly I believe)

If the number is $57,000 or greater ($63,500 if 50+) then you can max out the Solo 401k.

Keep in mind that the annual addition (2020 limit = $57K) is not extended except by employee catch-up contributions. The employee catch-up contribution (2020 limit = $6.5K) is not included in the annual addition limit, can only be contributed after the employee deferral (2020 limit = $19.5K) is maximized, and can only be pre-tax traditional or designated Roth contributions.

Sorry to be asking something perhaps that should be clear already but does this mean that for those age 50 and above the 2020 maximum aftertax contribution for those over 50 is $57k and in addition a catch up deferral contribution of $6.5k could be made?

No, the only way to maximize the employee catch-up contribution is to make the maximum employee deferral.

If you want to maximize your total contributions. Your maximum employee after-tax contribution = $57K - $19.5K employee deferrals - employer contributions, or $37.5K - employer contributions. Then you are additionally able to make the $6.5K catch-up contribution for a total of $63.5K.

If you make employee deferrals of < $19.5K, your maximum employee after-tax contributions = $57K - any employee deferrals - employer contributions with a maximum of $57K total contributions.

This is why it is misleading to refer to a $63.5K contribution limit. The relevant limit to employee after-tax contributions is always the annual addition limit. The catch-up contribution limit is irrelevant.

I think I finally get this (though I would not be shocked if I think I do but am mistaken). Thank you!

[ICMoney]

You mentioned Fidelity is your custodian. How many subaccounts do you have under your Solo 401(k)?

This is definitely tempting as I would love to be able to put $57,000 per year + $6,000 per year IRA into Roth contributions (MBR + Backdoor Roth IRA).

Note, Employee Fiduciary uses Matrix as the custodian. (Fidelity is not involved at all) Employee Fiduciary coordinated all setup of solo 401k subaccounts with Matrix, I did not have to do anything with Matrix directly except sign their service agreement, which EF provided.

Best, ICM

[ICMoney]

I think I follow it now. The Backdoor Roth has had a legal opinion that it doesn't violate the step doctrine. Is there any possibility the IRS could say this isn't allowed? I'm assuming not since this is more formally written in plan documents that the Department of Labor/IRS has approved?

See IRS Notice 2014-54. One article on this: https://www.kitces.com/blog/irs-notice- ... onversion/

From the IRS website itself: https://www.irs.gov/retirement-plans/ro ... ment-plans

Best, ICM

[Soon2BXProgrammer]

Executive Summary: Employee Fiduciary's solo 401(k) allows for Mega Backdoor Roth to be executed for a $500/year plan fee (plus $500 plan establishment fee), which includes TPA and recordkeeping services. In-plan Roth rollovers are $100 each and rollovers of voluntary after-tax contributions to a Roth IRA are $50 each.

DId EF charge extra for a plan that allows the mega backdoor Roth? because those prices don't align to:
https://www.employeefiduciary.com/401k-plan-pricing

[ef11]

Executive Summary: Employee Fiduciary's solo 401(k) allows for Mega Backdoor Roth to be executed for a $500/year plan fee (plus $500 plan establishment fee), which includes TPA and recordkeeping services. In-plan Roth rollovers are $100 each and rollovers of voluntary after-tax contributions to a Roth IRA are $50 each.

DId EF charge extra for a plan that allows the mega backdoor Roth? because those prices don't align to:
https://www.employeefiduciary.com/401k-plan-pricing

Yes, as OP stated earlier in the post they consider the MBR plan a "custom" plan, and therefore has higher charges.

My vote would be for using MySolo401k.net, housing your accounts at Fidelity, paying $550 setup fee, only paying $125 per year and no fee on AUM. This includes MBR.

[Spirit Rider]

Yes, as OP stated earlier in the post they consider the MBR plan a "custom" plan, and therefore has higher charges.

My vote would be for using MySolo401k.net, housing your accounts at Fidelity, paying $550 setup fee, only paying $125 per year and no fee on AUM. This includes MBR.

It is not likely a custom "plan". It is almost certainly the same 401k "plan" as all the other 401k plans they offer. The likely difference is a different adoption agreement or options on that agreement and the different administrative requirements and filings.

I won't comment on your second paragraph, because my views are well known.

[Soon2BXProgrammer]

Executive Summary: Employee Fiduciary's solo 401(k) allows for Mega Backdoor Roth to be executed for a $500/year plan fee (plus $500 plan establishment fee), which includes TPA and recordkeeping services. In-plan Roth rollovers are $100 each and rollovers of voluntary after-tax contributions to a Roth IRA are $50 each.

DId EF charge extra for a plan that allows the mega backdoor Roth? because those prices don't align to:
https://www.employeefiduciary.com/401k-plan-pricing

Yes, as OP stated earlier in the post they consider the MBR plan a "custom" plan, and therefore has higher charges.

My vote would be for using MySolo401k.net, housing your accounts at Fidelity, paying $550 setup fee, only paying $125 per year and no fee on AUM. This includes MBR.

I appreciate your response, however i was hoping the OP could share more before i reached out to EF.

I'm not concerned with the 0.08% AUM, if i roll all the aftertax funds out of the plan.
I am looking for a TPA as a risk reduction.
In my business i'm outsourcing all sorts of things, to give me the workload that I want.
Effectively i've already won the game, so i am trying to run a business that makes sense for me, so a few hundred dollars (yearly) of business expenses is inconsequential in the long run.

[ICMoney]

Executive Summary: Employee Fiduciary's solo 401(k) allows for Mega Backdoor Roth to be executed for a $500/year plan fee (plus $500 plan establishment fee), which includes TPA and recordkeeping services. In-plan Roth rollovers are $100 each and rollovers of voluntary after-tax contributions to a Roth IRA are $50 each.

DId EF charge extra for a plan that allows the mega backdoor Roth? because those prices don't align to:
https://www.employeefiduciary.com/401k-plan-pricing

Yes, as OP stated earlier in the post they consider the MBR plan a "custom" plan, and therefore has higher charges.

My vote would be for using MySolo401k.net, housing your accounts at Fidelity, paying $550 setup fee, only paying $125 per year and no fee on AUM. This includes MBR.

I appreciate your response, however i was hoping the OP could share more before i reached out to EF.

I'm not concerned with the 0.08% AUM, if i roll all the aftertax funds out of the plan.
I am looking for a TPA as a risk reduction.
In my business i'm outsourcing all sorts of things, to give me the workload that I want.
Effectively i've already won the game, so i am trying to run a business that makes sense for me, so a few hundred dollars (yearly) of business expenses is inconsequential in the long run.

Hi Soon2BXProgrammer, the MBR solo 401(k) is considered a "custom" plan by Employee Fiduciary, so the fees are a $500 plan establishment or plan transfer fee, plus $500/year ongoing plan fee (which includes TPA and record keeping). This is higher than the solo 401k fees on their website since it is a "custom" plan. You could submit a website inquiry to EF if you want to confirm nothing has changed, their first email response to me after I submitted a website inquiry stating I was looking for a solo 401k plan with after tax contributions and in-service rollovers of these amounts included their full fee schedule for a custom solo 401k with MBR.

I agree with you in that I was more than willing to pay the $500/year fee, because the amount of time/risk of me doing plan administration myself would cost far more to me than this. They included a summary of the things they complete as TPA in the initial fee schedule they sent as well, and there is quite a lot on it so certainly a good thing in my opinion to "outsource" at this cost.

Best, ICM

[vm81]

Executive Summary: Employee Fiduciary's solo 401(k) allows for Mega Backdoor Roth to be executed for a $500/year plan fee (plus $500 plan establishment fee), which includes TPA and recordkeeping services. In-plan Roth rollovers are $100 each and rollovers of voluntary after-tax contributions to a Roth IRA are $50 each.

DId EF charge extra for a plan that allows the mega backdoor Roth? because those prices don't align to:
https://www.employeefiduciary.com/401k-plan-pricing

Yes, as OP stated earlier in the post they consider the MBR plan a "custom" plan, and therefore has higher charges.

My vote would be for using MySolo401k.net, housing your accounts at Fidelity, paying $550 setup fee, only paying $125 per year and no fee on AUM. This includes MBR.

I appreciate your response, however i was hoping the OP could share more before i reached out to EF.

I'm not concerned with the 0.08% AUM, if i roll all the aftertax funds out of the plan.
I am looking for a TPA as a risk reduction.
In my business i'm outsourcing all sorts of things, to give me the workload that I want.
Effectively i've already won the game, so i am trying to run a business that makes sense for me, so a few hundred dollars (yearly) of business expenses is inconsequential in the long run.

Hi Soon2BXProgrammer, the MBR solo 401(k) is considered a "custom" plan by Employee Fiduciary, so the fees are a $500 plan establishment or plan transfer fee, plus $500/year ongoing plan fee (which includes TPA and record keeping). This is higher than the solo 401k fees on their website since it is a "custom" plan. You could submit a website inquiry to EF if you want to confirm nothing has changed, their first email response to me after I submitted a website inquiry stating I was looking for a solo 401k plan with after tax contributions and in-service rollovers of these amounts included their full fee schedule for a custom solo 401k with MBR.

I agree with you in that I was more than willing to pay the $500/year fee, because the amount of time/risk of me doing plan administration myself would cost far more to me than this. They included a summary of the things they complete as TPA in the initial fee schedule they sent as well, and there is quite a lot on it so certainly a good thing in my opinion to "outsource" at this cost.

Best, ICM

Thanks a lot for starting this post as it helps people like me a lot to learn from someone else who has done the exact same thing.

Couple other questions if you can answer:

1) 8-9 months in - how has your experience been so far with Employee Fiduciary?

2) So I have some assets sitting in Roth 401k that were employEE deferral. They will have to sit at Employee Fiduciary as they cant be rolled over to a roth IRA. Whats your experience been with the funds they have? I am mostly a single stock guy so was thinking of adding a SDB option. Any experience with that? It pains me that I will have to pay .02% every quarter on that amount - but it is what it is.

3) You said that you went over the documents with fine details - were there any gotchas that I should be aware of? They sent me two agreements to sign and they said they will take it from there. I asked them about all the options that I need for MBR (after tax contributions, in-service rollovers, etc) and they said they are all possible in the plan but I work on that with the agent who is going to be working on my conversion from etrade to EF. If I sign these documents and for some reason they dont add all the features to the plan - I am kinds screwed.

Thank you for all your insights.

[retiredjg]

2) So I have some assets sitting in Roth 401k that were employEE deferral. They will have to sit at Employee Fiduciary as they cant be rolled over to a roth IRA.

Why can't they be rolled into Roth IRA?

[Spirit Rider]

2) So I have some assets sitting in Roth 401k that were employEE deferral. They will have to sit at Employee Fiduciary as they cant be rolled over to a roth IRA.

Why can't they be rolled into Roth IRA?

IRS regulations prohibit the in-service rollover of employee deferrals prior to age 59 1/2. This still applies to any IRRs of same.

OP, you can pick any fund lineup you want at EF, quote from their website;

• "With Employee Fiduciary, you get access to all NSCC-tradeable funds on the market - nearly 30,000 share classes from 377 fund families.
  
  This includes low-cost options such as:
  
  Vanguard
  Index Funds
  Exchange-Traded Funds (ETFs)
  
  You can also elect to include a self-directed brokerage account from TD Ameritrade, which allows you to invest in any fund on the market - even those outside your plan's fund lineup."

For example, you could select a fund lineup of Fidelity and/or Vanguard index funds to keep the costs low. You could select Fidelity for most asset classes for lowest ERs (I do not believe the Zero Index funds would be available) and fill in with Vanguard if lower ER, your preference or asset class/index that Fidelity does not offer.

You could have Total Stock Market (TSM), Total International Market (TIM) and Total Bond Market (TBM) for a three-fund portfolio.

You could substitute TSM with S&P 500/Extended Market, substitute TIM for Global EX-US and add Emerging Markets and substitute TBM for Corporate, nominal Treasuries and TIPS.

If you wanted more asset classes/tilting you could substitute TSM for Large/Mid/Small Cap and Growth/Value and add REIT.

Personally I wouldn't have a fund lineup >= 10 - 12 index funds. Not that I would necessarily recommend it, you could use the brokerage link to invest in a few stocks or individual bonds.

[retiredjg]

2) So I have some assets sitting in Roth 401k that were employEE deferral. They will have to sit at Employee Fiduciary as they cant be rolled over to a roth IRA.

Why can't they be rolled into Roth IRA?

IRS regulations prohibit the in-service rollover of employee deferrals prior to age 59 1/2. This still applies to any IRRs of same.

I think it is an old 401k, not the one that vm81 is planning to open at EF.

[vm81]

2) So I have some assets sitting in Roth 401k that were employEE deferral. They will have to sit at Employee Fiduciary as they cant be rolled over to a roth IRA.

Why can't they be rolled into Roth IRA?

IRS regulations prohibit the in-service rollover of employee deferrals prior to age 59 1/2. This still applies to any IRRs of same.

I think it is an old 401k, not the one that vm81 is planning to open at EF.

Well my understanding is what Spirit Rider said - you can not move your Roth 401K employEE deferral out to a Roth IRA while still employed OR plan exists for solo 401k. I am not sure that the fact that I am moving custodian from eTrade to Employee Fiduciary and converting plan to them - does it afford me an opportunity to take employEE Deferral thats sitting in roth 401k and move it Roth IRA? If it does that will be great, but if not then I have to deal with it.

Spirit Rider - EF told me I can open a self directed brokerage at TD Ameritrade as part of the plan. Does having SDB take care of being able to invest in stocks OR brokerage link is something on top of that?

[Spirit Rider]

I think it is an old 401k, not the one that vm81 is planning to open at EF.

Well my understanding is what Spirit Rider said - you can not move your Roth 401K employEE deferral out to a Roth IRA while still employed OR plan exists for solo 401k. I am not sure that the fact that I am moving custodian from eTrade to Employee Fiduciary and converting plan to them - does it afford me an opportunity to take employEE Deferral thats sitting in roth 401k and move it Roth IRA? If it does that will be great, but if not then I have to deal with it.

When you move a one-participant 401k plan from one provider to another, you do so by "amending" the "401k plan" from the old provider to the new provider by using the amendment section of the new provider's adoption agreement. Then you do a trustee -> trustee transfer. EF will not be a new one-participant 401k plan, it is the "same" one-participant 401k plan. Therefore, there is no separation and any rollover would be in-service and prohibited.

Spirit Rider - EF told me I can open a self directed brokerage at TD Ameritrade as part of the plan. Does having SDB take care of being able to invest in stocks OR brokerage link is something on top of that?

A self-directed brokerage and a brokerage link are two names for the same thing.

[ICMoney]

Thanks a lot for starting this post as it helps people like me a lot to learn from someone else who has done the exact same thing.

Couple other questions if you can answer:

1) 8-9 months in - how has your experience been so far with Employee Fiduciary?

It has been good, I am mostly hands-off with this plan so haven't engaged with them really since December. But I will be in about a month so will report back if there are any issues or other things that might be helpful for future EF solo 401k'ers to be aware of.

2) So I have some assets sitting in Roth 401k that were employEE deferral. They will have to sit at Employee Fiduciary as they cant be rolled over to a roth IRA. Whats your experience been with the funds they have? I am mostly a single stock guy so was thinking of adding a SDB option. Any experience with that? It pains me that I will have to pay .02% every quarter on that amount - but it is what it is.

I mostly picked Vanguard funds (around 30 if I remember correctly, though I only invest in one of them) and they had all of them. They had a much wider selection of funds beyond Vanguard as well. I don't have any experience with the SDB option. I was ok with the .02% per quarter because I didn't roll anything into it so it was on a relatively small asset base, I only have my Roth 401k deferrals from last year in it now.

3) You said that you went over the documents with fine details - were there any gotchas that I should be aware of? They sent me two agreements to sign and they said they will take it from there. I asked them about all the options that I need for MBR (after tax contributions, in-service rollovers, etc) and they said they are all possible in the plan but I work on that with the agent who is going to be working on my conversion from etrade to EF. If I sign these documents and for some reason they dont add all the features to the plan - I am kinds screwed.

Thank you for all your insights.

I wouldn't worry about all of the features not being there - they are, and you have made it clear this is what you're looking for so I'm doubtful they would mess it up. Most of the gotchas I recall were that there were missing "voluntary after tax" checkboxes/columns on some of their forms, but I am guessing they may have been fixed universally once it was pointed out to them?

Let me know if you have other questions, I'm not on here daily but will reply when I'm able.

Best, ICM

[mcraepat9]

Following

[reastman]

Thank you so much for starting this post, and to all those who have contributed. Perfect timing!

It seems after taking a peek at their website, EF also charge fees for picking their funds, such as Vanguard. Is that correct or did I misread?


Thank you
Roberta

[reastman]

Sorry if I missed this in the thread. Was it mentioned if EF offers the loan feature?

Thanks again
Roberta