Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

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Topic Author
GrowthSeeker
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Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by GrowthSeeker » Fri Aug 09, 2019 9:41 am

Hi everyone. I'm trying to help a friend get set up to do Backdoor Roth, but her solo 401k is at Vanguard, which does not allow IRA money to be rolled in. She has a t-IRA with mostly pre tax contributions but some after tax basis. No other IRAs (no SEP, no SIMPLE). There is only one business.
I have 3 questions:
(1) which 401k brokerage {Fidelity / Schwab / Etrade},
(2) Social Engineering of low information customer service individuals, and
(3) sequence of events

I found at WhiteCoatInvestor: "Rule # 4 You Only Get One SEP, SIMPLE, or 401(k) Per Unrelated Employer Per Year". But I haven't been able to find a tax law reference that proves this, not that I should need to.
I believe what is necessary is to create a new solo 401k plan at a new brokerage (cannot use the Vanguard 401k plan with a separate account at, say, Fidelity).

But various phone calls to Fidelity lead to customer service individuals who know nothing about this, and punt by saying "talk to your tax advisor".

Here is what I have gleaned about several brokerages' solo 401k plans (I don't think we have any need for Roth 401k or to take out loans from the 401k but I include for completeness):

Code: Select all

             IRA → 401k      Option for	
Brokerage   reverse roll?    Roth 401k?   Loans?
Fidelity       yes              no          no
Schwab         yes              no          no
Etrade         yes              yes        yes
			
TDAmeritrade    no              yes        yes
Vanguard        no              yes         no
Question 1: Have others found pros/cons regarding Fidelity vs Schwab vs Etrade (solo 401k, reverse IRA to 401k rollover specifically)?

Question 2: If customer service individuals keep saying "you can't do that", but I know "I can do that", how do you persuade them? Example: should I just not mention the other 401k which is at Vanguard?

Question 3: Any errors and/or better solutions in the following sequence of events:
open new solo 401k at a new brokerage,
leave the Vanguard 401k alone for the moment,
all of the following steps to be done at the new brokerage,
move the Vanguard t-IRA in kind to the new brokerage,
roll all but the basis of the t-IRA into the new 401k (new brokerage),
make all 2019 related 401k contributions to the solo 401k at the new brokerage,

open Roth IRA at whichever brokerage,
make an after tax contribution to a new t-IRA at whichever brokerage,
Roth conversion: transfer from the new t-IRA and from the old (basis containing) t-IRA into the Roth IRA.

In future years, use whichever 401k plan (whichever brokerage) she wants,
Optionally transfer in kind from one 401k into the other so there is only one plan and one brokerage (not sure if this possible).

Thank you.
Last edited by GrowthSeeker on Fri Aug 09, 2019 2:17 pm, edited 1 time in total.
Just because you're paranoid doesn't mean they're NOT out to get you.

HomeStretch
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by HomeStretch » Fri Aug 09, 2019 1:17 pm

I have (and like) Fidelity’s prototype Solo 401k which allows rollovers in. However, if your friend may want the ability to do Roth contributions or in-plan Roth rollovers, I suggest looking into E*TRADE’s prototype Solo 401k plan which has all 3 features. A recent post in another thread mentioned receiving a bonus for moving a Solo 401k plan with a certain amount of assets to E*TRADE.

My understanding is that a business can only have one Solo 401k plan. As your friend already has a Vanguard Solo 401k plan, your friend cannot open a new plan for the same business. To move to another brokerage, she needs to amend the current plan and then transfer the plan assets from the old provider to the new provider. You mentioned transferring in kind... that’s not necessary as there are no tax consequences. If your friend intends to invest in different funds/ETFs at the new provider, it may be easier to transfer cash.

I suggest your friend talk to E*TRADE or Fidelity about amending the current plan.
Last edited by HomeStretch on Fri Aug 09, 2019 1:52 pm, edited 1 time in total.

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FiveK
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by FiveK » Fri Aug 09, 2019 1:42 pm

Is the information in Solo 401(k) plan - Bogleheads (including links therein) useful?

If so, great. If not, after you do get enough useful information, perhaps you could suggest improvements to that article?

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Fri Aug 09, 2019 2:11 pm

HomeStretch wrote:
Fri Aug 09, 2019 1:17 pm
My understanding is that a business can only have one Solo 401k plan.
You just scared the heck out of me! I just set up my second Solo401k at Schwab, already having one at Vanguard. Schwab tells me, moments ago, that it's fine to have two accounts, so long as they're under the same EIN (for the same business). So my second Solo401k at Schwab is still the same "plan," it's just another account. So I strongly encourage the original poster to call Schwab or whomever and confirm this.

Reading between the lines, perhaps you could have a second solo 401k entirely, with a different EIN, if you have an entirely separate other business than the first Solo 401k's business.

HomeStretch
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by HomeStretch » Fri Aug 09, 2019 2:51 pm

abyan wrote:
Fri Aug 09, 2019 2:11 pm
HomeStretch wrote:
Fri Aug 09, 2019 1:17 pm
My understanding is that a business can only have one Solo 401k plan.
I just set up my second Solo401k at Schwab, already having one at Vanguard. Schwab tells me, moments ago, that it's fine to have two accounts, so long as they're under the same EIN (for the same business). So my second Solo401k at Schwab is still the same "plan," it's just another account.
Do you plan to keep both plans active and contribute to both? Or are you transferring from Vanguard to Schwab?

Topic Author
GrowthSeeker
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by GrowthSeeker » Fri Aug 09, 2019 3:47 pm

So regarding the question of whether or not one business can have two different Individual 401k plans:
FiveK wrote:
Fri Aug 09, 2019 1:42 pm
Is the information in Solo 401(k) plan - Bogleheads (including links therein) useful?

If so, great. If not, after you do get enough useful information, perhaps you could suggest improvements to that article?
The BH wiki Solo 401(k) plan article doesn't address this question. But many thanks to FiveK for the link. It linked to a comparison of different brokerages for 401k, also at WCI Where to Open Your Solo 401K.

We have a vote for "can't":
HomeStretch wrote:
Fri Aug 09, 2019 1:17 pm
My understanding is that a business can only have one Solo 401k plan.
And a vote for "can":
abyan wrote:
Fri Aug 09, 2019 2:11 pm
Schwab tells me, moments ago, that it's fine to have two accounts, so long as they're under the same EIN (for the same business). So my second Solo401k at Schwab is still the same "plan," it's just another account. So I strongly encourage the original poster to call Schwab or whomever and confirm this.

Reading between the lines, perhaps you could have a second solo 401k entirely, with a different EIN, if you have an entirely separate other business than the first Solo 401k's business.
And WCI who says "can", scroll down to Rule #4:
https://www.whitecoatinvestor.com/multiple-401k-rules/

---
But I did just call Etrade, and indeed they are still paying a bonus for moving a 401k over to Etrade; the size of the bonus increases with the amount. I didn't ask about every tier but he said:
$100,000 to $250,000: $500
$250,000 to $300,000: $1,000
$300,000 to $1,000,000: I didn't ask, not sure how many tiers.
Over $1,000,000: $2,500
(these bonus amounts are larger than I found by googling)

So it seems better to move the VG 401k to Etrade than to worry about trying to have two plans. Still I'd like to know what is possible and what is not.
Hmmmm, possible snag. Etrade might not be able to accept Admiral shares, and we just went through the phone call a few months ago getting the VG 401k shares changed to Admiral. Sheesh!!

I still have to call Schwab.

And I'm not sure if the Roth 401k option would be helpful or not. Maybe if there is a future year with low income.
Just because you're paranoid doesn't mean they're NOT out to get you.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Fri Aug 09, 2019 4:10 pm

HomeStretch wrote:
Fri Aug 09, 2019 1:17 pm
Do you plan to keep both plans active and contribute to both? Or are you transferring from Vanguard to Schwab?
I’m doing this so I can move my SEP IRA into a 401(k) and not have to worry about the pro rata rule when I do my back door Roth.
My plan is to move the solo 401(k) at Schwab back to Vanguard and combine them there. Both Vanguard and Schwab told me that is doable. I would only contribute to the one at Vanguard.

Spirit Rider
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Fri Aug 09, 2019 10:23 pm

This is not even a close call. A business can NOT open a new one-participant 401k when it already maintains a one-participant 401k. Whether the business makes contributions for the same tax year to both plans or not is irrelevant. The same business can NOT maintain more than one 401k plan for the same employees.

The Schwab customer service rep is absolutely wrong and it is disturbing for them to provide such incorrect information. Fidelity is actually being more responsible by advising to contact a tax professional.

Technically, you could have two businesses and two separate one-participant 401k plans. Each plan could only use that businesses net income as the basis for contributions. However, they would be considered a controlled group and would be subject to just one annual addition limit. This is not the first time Schwab reps have been incorrect and unfortunately Etrade reps have been incorrect at times even more often.

@GrowthSeeker, first you need to understand that while you first adopted your one-participant 401k plan at Vanguard. The 401k plan belongs to the plan sponsor. Vanguard is only the document provider, custodian, record keeper and trustee. @HomeStretch is correct, there is one and only one correct way to accomplish this:
  • You amend your one-participant 401k to the new provider by using the amendment section of the adoption agreement, open necessary accounts and do a trustee -> trustee transfer from Vanguard to the new new provider.
  • The key point is that it is still the same one-participant 401k plan with the same sequence number.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Fri Aug 09, 2019 11:19 pm

Okay, sorry to hijack this thread, but now I'm starting to panic. So what do I do? I already set up an additional Solo 401k at Schwab, and just today wrote Vanguard asking them to move my SEP IRA to Schwab (i.e., to directly roll over my SEP IRA into my Solo 401k, to avoid the pro rata rule). Can I call Vanguard and cancel the rollover, call Schwab and terminate the Solo 401k, then move my Solo401k from Vanguard to Schwab, and then initiate a new direct rollover from my Vanguard SEP to my Schwab Solo 401k?

And actually, how does that even work? In order to move my Solo401k to Schwab (so that I can roll over my SEP IRA into it), don't I need to create a new Solo401k at Schwab anyway, so that my Vanguard Solo 401k can move into it? Is the solution leaving the new Solo 401k at Schwab, directly rolling over the Vanguard Solo 401k to the new Solo 401k at Schwab. Then directly rolling over the Vanguard SEP IRA to the Solo 401k at Schwab. Then moving the Schwab Solo 401k back to Vanguard and terminating the Schwab solo 401k? So in essence, I really only have one Solo 401k at a time, first at Vanguard, then at Schwab, and finally back at Vanguard?

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southerndoc
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by southerndoc » Fri Aug 09, 2019 11:33 pm

There's a difference in creating a new account and a new plan. If you are amending a Solo 401(k) from one broker to another, you will create a new account to amend your plan to. I had to create a new account at Vanguard when I amended my plan from Fidelity. However, when creating it, the same plan number (001) was used. Creating a new plan would mean a new sequence number.

I'm not sure if you can maintain two accounts under the same plan. Doesn't seem like the IRS would allow that. It would make things more difficult to keep up with end-of-year assets to determine if a 5500 is needed. One penny over $250,000 and you will be required to file the 5500 form.

Whether it's allowed or not, it's a bad idea to maintain the "same plan" at two different brokers.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Fri Aug 09, 2019 11:36 pm

Schwab definitely told me to keep the same plan number, 001, because I already had the solo 401k at vanguard. I’m very confused right now, so what should I do?

And just to reiterate, all I want to do is rollover my SEP into my Solo401k, both of which are at Vanguard which doesn’t permit it. So what’s the proper way to do this? And thank you.

Spirit Rider
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Fri Aug 09, 2019 11:53 pm

abyan wrote:
Fri Aug 09, 2019 2:11 pm
HomeStretch wrote:
Fri Aug 09, 2019 1:17 pm
My understanding is that a business can only have one Solo 401k plan.
You just scared the heck out of me! I just set up my second Solo401k at Schwab, already having one at Vanguard. Schwab tells me, moments ago, that it's fine to have two accounts, so long as they're under the same EIN (for the same business). So my second Solo401k at Schwab is still the same "plan," it's just another account. So I strongly encourage the original poster to call Schwab or whomever and confirm this.
You might want to be concerned. Schwab is either yet again giving out incorrect information or you are misunderstanding/misstating the situation.

When you normally complete a one-participant 401k adoption agreement, you are establishing a new one-participant 401k plan. You then open accounts under that plan. Schwab/you are wrong, a second one-participant 401k plan is not "two accounts" and is not OK under the same business/EIN. Your second one-participant 401k is "Not the same plan". There is no point calling Schwab to get yet more incorrect information.
abyan wrote:
Fri Aug 09, 2019 4:10 pm
HomeStretch wrote:
Fri Aug 09, 2019 1:17 pm
Do you plan to keep both plans active and contribute to both? Or are you transferring from Vanguard to Schwab?
I’m doing this so I can move my SEP IRA into a 401(k) and not have to worry about the pro rata rule when I do my back door Roth. My plan is to move the solo 401(k) at Schwab back to Vanguard and combine them there. Both Vanguard and Schwab told me that is doable. I would only contribute to the one at Vanguard.
The proper steps to do what you want are:
  • Amend your one-participant 401k plan to Schwab using the amendment section of Schwab's adoption agreement, open the necessary Schwab accounts under that plan and do a trustee -> trustee transfer from Vanguard to Schwab. When you amend one-participant 401k, you keep the same plan sequence number. When you terminate a plan which you should almost never do and sometime adopt a new plan, only then you should increment the sequence number.
  • Rollover the SEP IRA to Schwab's one-participant 401k.
  • Amend your one-participant 401k plan to Vanguard using the amendment section of Vanguard's adoption agreement, open the necessary Vanguard accounts under that plan and do a trustee -> trustee transfer from Schwab to Vanguard.
Although, I have no idea why you would want to go through the extra effort to do the last step and reward Vanguard for their ridiculous rollover policy. Schwab is a perfectly fine brokerage for your one participant 401k.

I allow the possibility that this is exactly what Schwab said to do and you are misunderstanding what you are doing. If not this is a serious 401k plan error and you should take necessary steps to correct it. If all you have done at this point is adopt a 2nd one-participant 401k plan. You should be able to correct this by refiling the adoption agreement using the amendment section to amend your current plan adopted at Vanguard. If you don't catch this early it only gets worse later.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Fri Aug 09, 2019 11:59 pm

Trust me. I’ve had Multiple phone calls with Schwab, including one today after I read the first post of someone telling me I couldn’t have both solo 401(k)s. The Schwab person assured me it was fine so long as it was for the same business. I definitely didn’t misunderstand anything. I’ll call them and Vanguard first thing Monday. And I don’t disagree with you about moving the solo 401(k) back to Vanguard, but I just thought since all my other accounts are at Vanguard it would be easier to have it there.

Thank you so much for catching this and for helping. I really appreciate it.

Spirit Rider
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Sat Aug 10, 2019 12:52 am

GrowthSeeker wrote:
Fri Aug 09, 2019 9:41 am
"Rule # 4 You Only Get One SEP, SIMPLE, or 401(k) Per Unrelated Employer Per Year". But I haven't been able to find a tax law reference that proves this, not that I should need to.
There is not one single place that states you can only have one of three plan types per year. However:
  • There is a prohibition on maintaining any other plan when you have a SIMPLE IRA plan.
    26 U.S. Code § 408. Individual retirement accounts, (p) Simple retirement accounts, (2) Qualified salary reduction arrangement, (D) Arrangement may be only plan of employer.
  • You can not maintain a 5305-SEP IRA plan and a qualified plan for the same plan year. A SEP IRA is only maintained when you make contributions for that tax year. A 401k plan is maintained from adoption to termination regardless if there are any contributions for the tax year.
    Form 5305-SEP, Page 2. When not to use Form 5305-SEP. Do not use this form if you: 1. Currently maintain any other qualified retirement plan. This does not prevent you from maintaining another SEP.
    Note: You can maintain a prototype SEP IRA (Schwab, Merrill Lynch, etc...) and a one-participant 401k for the same tax year.
  • The simple reason you can not have two 401k plans at the same employer for the same employee is because of compliance. It is a serious 401k plan error to not follow the 401k plan document. If you adopt two 401k plans, both plan documents are in effect with conflicting legally binding provisions. The reason for wanting to rollover a SEP IRA is a perfect case in point.

    The reason you wanted to go to Schwab is because Vanguard doe not allow rollover contributions. However, if you adopt a new second one-participant 401k plan at Schwab, the Vanguard plan is still in effect. When you rollover the SEP IRA, that is a serious Vanguard plan error that could jeopardize the qualification status of the Vanguard plan with potential severe consequences.

Spirit Rider
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Sat Aug 10, 2019 1:12 am

abyan wrote:
Fri Aug 09, 2019 11:59 pm
Trust me. I’ve had Multiple phone calls with Schwab, including one today after I read the first post of someone telling me I couldn’t have both solo 401(k)s. The Schwab person assured me it was fine so long as it was for the same business. I definitely didn’t misunderstand anything. I’ll call them and Vanguard first thing Monday. And I don’t disagree with you about moving the solo 401(k) back to Vanguard, but I just thought since all my other accounts are at Vanguard it would be easier to have it there.
The quoted sentence is exactly backwards. You can have two 401k plans as long as they are for two separate businesses.

From your earlier statements it sounds like the Schwab reps don't understand that a one-participant 401k plan is not just like a "bigger IRA account". It is not even just a 401k account. It is a 401k plan with a very detailed plan document outlining all the operational plan rules that must be followed.

Even Vanguard has the same problem in that their front line retail one-participant 401k plan reps get very little training on the detailed ins and outs of 401k plans. I have found that you need to get past the retail level to business retirement plan specialists to get someone who has a clue.

Nthomas
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Nthomas » Sat Aug 10, 2019 9:58 am

abyan wrote:
Fri Aug 09, 2019 11:59 pm
Trust me. I’ve had Multiple phone calls with Schwab, including one today after I read the first post of someone telling me I couldn’t have both solo 401(k)s. The Schwab person assured me it was fine so long as it was for the same business. I definitely didn’t misunderstand anything. I’ll call them and Vanguard first thing Monday. And I don’t disagree with you about moving the solo 401(k) back to Vanguard, but I just thought since all my other accounts are at Vanguard it would be easier to have it there.

Thank you so much for catching this and for helping. I really appreciate it.
I was in the same situation as you. Schwab told me no big deal as long as not exceeding annual contribution limits and Vanguard seemed more concerned about it with similar concerns as Spirit Rider. After a year of having both accounts I ended up just transferring the VG i401K to my existing i401K at Schwab and it wasn't a huge deal. Similar to a regular online transfer of account. No one got their undies in a bunch about amending this and that or any other formal.ity and so far no one has confiscated my money or closed my account for my lackadaisical attitude. I don't think you need to "freak out".

HomeStretch
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by HomeStretch » Sat Aug 10, 2019 10:30 am

Nthomas wrote:
Sat Aug 10, 2019 9:58 am
abyan wrote:
Fri Aug 09, 2019 11:59 pm
Trust me. I’ve had Multiple phone calls with Schwab, including one today after I read the first post of someone telling me I couldn’t have both solo 401(k)s. The Schwab person assured me it was fine so long as it was for the same business. I definitely didn’t misunderstand anything. I’ll call them and Vanguard first thing Monday. And I don’t disagree with you about moving the solo 401(k) back to Vanguard, but I just thought since all my other accounts are at Vanguard it would be easier to have it there.

Thank you so much for catching this and for helping. I really appreciate it.
I was in the same situation as you. Schwab told me no big deal as long as not exceeding annual contribution limits and Vanguard seemed more concerned about it with similar concerns as Spirit Rider. After a year of having both accounts I ended up just transferring the VG i401K to my existing i401K at Schwab and it wasn't a huge deal. Similar to a regular online transfer of account. No one got their undies in a bunch about amending this and that or any other formal.ity and so far no one has confiscated my money or closed my account for my lackadaisical attitude. I don't think you need to "freak out".
In the situation discussed here (one business, two plans), I would be more concerned about non-compliance with IRS 401k plan qualification rules and less concerned about a provider closing my account or confiscating money. The Solo 401k prototype provider isn’t the plan administrator.

There are repercussions if the IRS disqualifies a plan. So the best course of action is to know the rules, stay in compliance and correct any issues ASAP.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sat Aug 10, 2019 10:36 am

I agree. No one has given NThomas any problems, but I suspect he hasn't been audited yet. If an audit were to occur, I'd rather not be in the position of having to defend the legitimacy of my entire Solo 401k. Better to be safe and fix it in the manner that SpiritRider has suggested.

Nthomas
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Nthomas » Sat Aug 10, 2019 11:19 am

abyan wrote:
Sat Aug 10, 2019 10:36 am
I agree. No one has given NThomas any problems, but I suspect he hasn't been audited yet. If an audit were to occur, I'd rather not be in the position of having to defend the legitimacy of my entire Solo 401k. Better to be safe and fix it in the manner that SpiritRider has suggested.
Fair point, I didn't consider an audit. What would happen if the plan was disqualified? Pay taxes on contributions?

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GrowthSeeker
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by GrowthSeeker » Sat Aug 10, 2019 11:26 am

abyan wrote:
Fri Aug 09, 2019 11:19 pm
Okay, sorry to hijack this thread, but now I'm starting to panic.
Absolutely no worries about a hijack, your fear is my fear, I just haven't made the second plan yet.

Many thanks to Spirit Rider whose comments all seem credible to me.
But, if I may pause a few seconds to rant: the government and IRS intentionally make these things so confusing that the majority of investors, brokerage employees, accountants, and even IRS employees will have opinions on every side of the issue. Ok, end of rant.

My opinion now is: even if it is true that you can have 2 plans (only one employer, never contributing to both plans during the same year), there would be enough people with power over me to make life miserable if they believed it to be false. So I think I should assume it is false.
Spirit Rider wrote:
Fri Aug 09, 2019 11:53 pm
The proper steps to do what you want are:
  • Amend your one-participant 401k plan to Schwab using the amendment section of Schwab's adoption agreement, open the necessary Schwab accounts under that plan and do a trustee -> trustee transfer from Vanguard to Schwab. When you amend one-participant 401k, you keep the same plan sequence number. When you terminate a plan which you should almost never do and sometime adopt a new plan, only then you should increment the sequence number.
  • Rollover the SEP IRA to Schwab's one-participant 401k.
  • Amend your one-participant 401k plan to Vanguard using the amendment section of Vanguard's adoption agreement, open the necessary Vanguard accounts under that plan and do a trustee -> trustee transfer from Schwab to Vanguard.
(3rd bullet point edited by GrowthSeeker)
I have a downloaded blank form from Etrade; and somewhere there is a copy of the VG existing plan document. I am really not sure at this point, but it sounds like what I need to do is amend the existing 401k PLAN using Etrade's form, which I have downloaded. The plan number will be the same as the existing plan which has the account at VG. The Etrade form will have a section where I can amend the plan (though I don't know what change I would be making by amending it; maybe the location of the account as being Etrade instead of VG)
Spirit Rider wrote:
Sat Aug 10, 2019 1:12 am
I have found that you need to get past the retail level to business retirement plan specialists to get someone who has a clue.
^that
Just because you're paranoid doesn't mean they're NOT out to get you.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sat Aug 10, 2019 11:27 am

That's my concern. That in a worst case scenario, they invalidate the contributions, so you not only pay taxes on them in arrears, but you also pay compounded penalties on those taxes :) And just as bad, I'm still playing catch up on my retirement funding, so I'd rather not lose half of my tax-deferred retirement money. It's a pain to transfer the 401k now that Schwab already has the new one set up, but it only takes an hour on the phone to get the new form and fill it out, so it's worth the trouble since I haven't, thankfully, moved any money into the new 401k yet.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sat Aug 10, 2019 11:30 am

Spirit Rider wrote:
Sat Aug 10, 2019 1:12 am
I have found that you need to get past the retail level to business retirement plan specialists to get someone who has a clue.
In fact, I was speaking with the small business retirement department at Schwab, several times, to get this info. I walked them thru EVERYTHING I wanted to do, and why. No one batted an eye. And then when I called yesterday, I was told in no uncertain terms that there was no problem opening up a second solo 401k for my same business so long as we put the plan number down as 01.

And I concur. I really hate how confusing this all is. Even those of us with a modicum of intelligence, who have done lots of readings, still screw this up.

Topic Author
GrowthSeeker
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by GrowthSeeker » Sat Aug 10, 2019 11:37 am

abyan wrote:
Sat Aug 10, 2019 11:27 am
It's a pain to transfer the 401k now that Schwab already has the new one set up, but it only takes an hour on the phone to get the new form and fill it out, so it's worth the trouble since I haven't, thankfully, moved any money into the new 401k yet.
Good luck, please keep us posted as to how this gets worked out.

btw, Etrade vs Schwab: did you have anything specific about Schwab you liked more then Etrade regarding this 401k? (I note Etrade allows Roth 401k AND regular 401k whereas Schwab doesn't have a Roth 401k option; but then I'm not sure if we would ever use the Roth 401k). And Etrade seems to have a bonus payment.
abyan wrote:
Sat Aug 10, 2019 11:30 am
.... I was told in no uncertain terms that there was no problem opening up a second solo 401k for my same business so long as we put the plan number down as 01.
Was the VG plan number 00 or 01?
If 01 was the same suffix as the VG plan number, maybe it's not a second plan but the same plan????
Just because you're paranoid doesn't mean they're NOT out to get you.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sat Aug 10, 2019 11:43 am

Re Scwhab, I've been on this board several years now, and folks seem to like Schwab and Fidelity generally, and more specifically I saw a number of folks talk about how Schwab has better customer service (ha!), and I've been really disappointed at the hit or miss quality of Vanguard's customer service over the years, so figured Schwab. Also, I was originally thinking of just moving this to Schwab, directly rolling over my sep ira, then rolling the entire thing back over into my solo 401k at Vanguard (which Vanguard's retirement specialist ALSO told me was super duper a-okay), so it didn't really matter where I moved it to, as I never intended to remain there longterm. I 've got my other accounts at Vanguard, and have mom there, so I like the simplicity of having one place. But their rules on the solo 401k are just archaic and annoying, and now causing me real problems. Some day I'll likely inherit an IRA from mom, and have to deal with this all over again IF I keep the solo401k at Vg. Thus I'm thinking of perhaps remaining at Schwab, I just don't want to have to learn an entirely different Web site.

As for the VG plan, that's a good question. Schwab didn't ask. And it's not shown anywhere on my VG Solo 401k account, I just checked. They simply said since I already had the VG plan, this would be 001. This came after the agent on the phone checked with a supervisor. The Schwab folks seemed to imply that this WAS the same plan, just a different account. I got a bit confused by that discussion earlier. I thought it was decided that I could do that (this is the same business I'm using for both plans.)

Spirit Rider
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Sat Aug 10, 2019 12:07 pm

You shouldn't be panicking, but you can and should correct it before you do any rollovers. That would be Vanguard 401k plan operational error, because you still have that plan.. Even that would not be that difficult to correct.

Schwab should allow you to revise the original adoption agreement from an adoption of a new plan to an amendment of a previous plan. The two options are typically adjacent in the adoption agreement. Then you should do a trustee -> trustee transfer from the old custodian (Vanguard) to the new custodian (Schwab).

The IRS isn't looking to beat people up. They just want you to timely and reasonably correct 401k plan errors and not do it again.

This is why there is a Self-Correction Program (SCP) of the Employee Plans Compliance Resolution System (EPCRS).
Effectively; "You find and correct you own errors, you never even have to tell us about it."

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sat Aug 10, 2019 12:31 pm

Thank you again, I really appreciate the help.

Spirit Rider
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Sat Aug 10, 2019 12:33 pm

abyan wrote:
Sat Aug 10, 2019 11:43 am
Some day I'll likely inherit an IRA from mom, and have to deal with this all over again IF I keep the solo401k at Vg. Thus I'm thinking of perhaps remaining at Schwab, I just don't want to have to learn an entirely different Web site.
You don't have to worry about an Inherited IRA interfering with the Backdoor Roth. All your owned pre-tax IRAs have separate non-deductible basis and pre-tax balances from pre-tax Inherited IRAs. Which is good, because you can't rollover an Inherited IRA to an owned account anyway, including a one-participant 401k.
As for the VG plan, that's a good question. Schwab didn't ask. And it's not shown anywhere on my VG Solo 401k account, I just checked. They simply said since I already had the VG plan, this would be 001. This came after the agent on the phone checked with a supervisor. The Schwab folks seemed to imply that this WAS the same plan, just a different account. I got a bit confused by that discussion earlier. I thought it was decided that I could do that (this is the same business I'm using for both plans.)
You should double check your Schwab Adoption Agreement and see if you actually elected an amendment to an existing plan. As I said, the options are typically immediately adjacent to each other on the adoption agreement. That is the only way the sequence number can remain the same, because it IS the same plan.

When you adopt a new plan, which you can only do if you don't currently have another plan. That is when you either use "1" if it is the first plan or increment the sequence number of the prior plan.

If you did in fact elect the option for a new plan, Schwab should readily allow you to revise the adoption agreement. They were clearly complicit if not entirely at fault for this error.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sat Aug 10, 2019 12:50 pm

I absolutely positively selected 001, I know because that’s what the guy went to ask his manager about. The manager said since I already had a plan at Vanguard this plans number was 001. So does that make this a new plan or simply a second account? Obviously I’ll call Schwab on Monday, but I just like more information before I call them so I know what’s going on.

Spirit Rider
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Sat Aug 10, 2019 1:09 pm

abyan wrote:
Sat Aug 10, 2019 12:50 pm
I absolutely positively selected 001, I know because that’s what the guy went to ask his manager about. The manager said since I already had a plan at Vanguard this plans number was 001. So does that make this a new plan or simply a second account? Obviously I’ll call Schwab on Monday, but I just like more information before I call them so I know what’s going on.
That is not what I asked. I asked whether you elected an amendment to an existing plan or a new plan.

The plan number is a consequence of electing an amendment of an existing plan or a new plan. If amendment the sequence number should have been "1", if a new plan sequence number should have been "2".

Regardless of whether an amendment of an existing plan or a new plan, it is a 401k plan at Schwab not just an account. Understanding this is critical for understanding how 401k plans and this process should be done.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sat Aug 10, 2019 3:56 pm

Sorry, this isn’t easy for those of us not as well steeped in all of this. I will check with Schwab on Monday as to which was selected. Does it change my options moving forward to rectify this matter? And if so, how exactly

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GrowthSeeker
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by GrowthSeeker » Sat Aug 10, 2019 4:19 pm

Will Schwab / Etrade need a copy of the VG paperwork which gave birth to the original 401K at VG?
Just because you're paranoid doesn't mean they're NOT out to get you.

Spirit Rider
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Sat Aug 10, 2019 4:33 pm

I realize this isn't easy for most people. I hope I didn't offend you.

The reason why it is important to determine if you actually elected an amendment to an existing plan. Is because if you did so, there has never been a problem.

All you would need to do is complete a trustee -> trustee transfer from Vanguard to Schwab.

Here's hoping that everything is fine and this has just been misinformation from Schwab.

As I said, even if a new plan was adopted, it should be relatively easy to revise the election to an amendment.

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GrowthSeeker
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by GrowthSeeker » Sat Aug 10, 2019 4:49 pm

Spirit Rider wrote:
Sat Aug 10, 2019 4:33 pm
I realize this isn't easy for most people. I hope I didn't offend you.
I can’t speak for anyone else, but I certainly do not feel offended, I’m glad to have the benefit of your knowledge and experience.

I do have “a particular set of skills”, but navigating through tax laws and obscure rules is not one of them.
Just because you're paranoid doesn't mean they're NOT out to get you.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sat Aug 10, 2019 4:56 pm

It’s fine, I thought I ticked you off :) Let me check with Schwab on Monday as to exactly what they had me set up, and then get back to you guys. But if it’s an amendment to an existing plan, you’re saying it would then be set up correctly and we can do a trustee to trustee transfer of my solo401k from vanguard to Schwab? Also, if this is an amendment to my existing plan, after the vanguard solo401k is transferred over to Schwab THEN I can do a direct rollover of my vanguard sep Ira to my Schwab solo401k and that’s fine too? And even if it’s an amendment to my existing plan, I’m assuming I put the vanguard sep Ira rollover on hold until the solo 401k is transferred from Vanguard. Otherwise I’ll have two solo401k accounts with money in them.

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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Sat Aug 10, 2019 5:58 pm

Yes, if it is an amendment, it is set up correctly and you can do the transfer. I have no knowledge if the transfer must be accomplished before the SEP IRA rollover, but it seems prudent.

If it is a new plan, you definitely want to revise it to an amendment of the existing plan before doing the SEP IRA rollover.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sat Aug 10, 2019 6:04 pm

OK thank you. I’ll check back on Monday.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sun Aug 11, 2019 9:49 am

Hey, so, while I have you all here.... a few more questions that might prove useful for the original poster as well:

1. Are there any special rules about doing a direct rollover of a SEP IRA into my new Solo401k at Schwab?

(Let's assume I first clear up the mess we discussed previously in this thread.) Vanguard (VG) and Schwab both said simply to do a direct rollover, and I'd be fine. (As mentioned, I'm going to transfer my Solo401k first from VG to Schwab so I don't end up with both Solo 401ks having assets in them at the same time).

2. Do I really care if my new Solo 401k at Schwab, once I transfer my old VG Solo401k and my VG SEP IRA, ends up having $255,000 in it post-transfer?

(SEP has around $180k in it, Solo401k has around $75k). I may still move the entire Solo401k back to Vanguard (I'm not thrilled that you have to mail in checks to contribute), but regardless, I read that you only have to file form 5500 if you have $250,000 or more ON DECEMBER 31 OF THE YEAR. It's not December 31 yet. So if I end up having more than $250,000 while at Schwab, and then in a few weeks move the Solo401k back to Vanguard, does this really create a more confusing filing for form 5500 if the IRS only cares about the balance on December 31 (which, presumably, if I move back to VG, it will then be a VG Solo401k)?

If there is the potential for this being more confusing if I have more than $250k at Schwab when I move the accounts, I can do a Roth IRA conversion of $8000 or so of my SEP IRA, just to be safe, before I direct rollover it to the Solo401k, so that the Solo401k at Schwab still has under $250k at the time I move the VG Solo401k over. It's not ideal since my combined fed/state marginal tax rate is likely 45% this year, but then again, $3600 won't break the bank if it saves me a lot of hassle in terms of the tax filing.

3. Converting Solo401k to Roth IRA -- but only in increments, not terminating the Solo401k.

The Schwab small business retirement folks told me I can convert my Solo401k to a Roth IRA, if I so choose in the future. I first want to know if that's true. But I also want to know if I can do it in increments -- meaning, if I have a low-income year, I can choose to convert, say, $50k of my Solo401k to a Roth IRA. Is that ok to do? I'd read in a previous thread some discussion of being able to do a Roth IRA conversion IF YOU TERMINATE THE SOLO 401K, which I don't want to do. And if I can do a piecemeal Roth conversion of the Solo401k, can I do it at Vanguard, or does that require keeping the Solo401k at Schwab?

Spirit Rider
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Sun Aug 11, 2019 12:17 pm

There are no special rules on a SEP IRA rollover to a one-participant 401k. It is the same as any other IRA rollover to any other 401k.

The point I have been trying to convey is that you only have single one-participant 401k plan. It doesn't matter where the balance is on 12/31. If you have > $250K on 12/31, you must file Form 5500-EZ, but you do not even report who is the provider is on that form.

The are no IRS restrictions on the withdrawal/rollover of rollover contributions. By default the are immediately distributable. As long as Schwab has no restrictions, you should be able to do Roth conversions of the rollover contributions as you see fit.

Here again, unless there was a miscommunication Schwab go you misinformation on other withdrawals/rollovers. While rollover contributions are usually allowed at any time, actual one-participant 401k contributions are restricted. IRS regulations prohibit the non-hardship in-service withdrawal/rollover of employee elective contribution prior to age 59 1/2. IRS regulations allow by do not require plans to allow the non-hardship in-service withdrawal/rollover of employer contributions prior to age 59 1/2. If fact Schwab has elapsed time of contribution and time of service restrictions on employer contributions.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sun Aug 11, 2019 12:33 pm

Spirit Rider wrote:
Sun Aug 11, 2019 12:17 pm
There are no special rules on a SEP IRA rollover to a one-participant 401k. It is the same as any other IRA rollover to any other 401k.

The point I have been trying to convey is that you only have single one-participant 401k plan. It doesn't matter where the balance is on 12/31. If you have > $250K on 12/31, you must file Form 5500-EZ, but you do not even report who is the provider is on that form.
Yes, I understand, and understood, that. :) I was just asking if it makes the paperwork any harder having the plan cross $250k at Schwab if I then move it in a month to Vanguard.


Spirit Rider wrote:
Sun Aug 11, 2019 12:17 pm
The are no IRS restrictions on the withdrawal/rollover of rollover contributions. By default the are immediately distributable. As long as Schwab has no restrictions, you should be able to do Roth conversions of the rollover contributions as you see fit.

Here again, unless there was a miscommunication Schwab go you misinformation on other withdrawals/rollovers. While rollover contributions are usually allowed at any time, actual one-participant 401k contributions are restricted. IRS regulations prohibit the non-hardship in-service withdrawal/rollover of employee elective contribution prior to age 59 1/2. IRS regulations allow by do not require plans to allow the non-hardship in-service withdrawal/rollover of employer contributions prior to age 59 1/2. If fact Schwab has elapsed time of contribution and time of service restrictions on employer contributions.
On this second part, are you therefore saying that my SEP IRA contributions rolled over to my Solo401k can be converted to Roth at any time, but my actual contributions directly to my Solo401k have to wait until I'm 59 1/2? If so, don't my IRA rollover contributions become increasingly difficult to calculate over time -- not the basis, but the growth?

And Scwhab definitely said nothing about that.

HomeStretch
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by HomeStretch » Sun Aug 11, 2019 12:54 pm

I wouldn’t be concerned about the account balance exceeding $250k requiring a Form 5500 unless you know you won’t make time to file a Form 5500 timely. Filing a Form 5500-EZ (paper) or Form 550-SE (electronic) is not hard after the year 1 learning curve. Vanguard and Fidelity have some helpful info online about completing the forms.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sun Aug 11, 2019 1:02 pm

Okay thanks. I just thought someone earlier had mentioned something about it being confusing if I moved the Solo401k back and forth, regarding filing that form. It looks pretty pro forma, and I've already googled discussions of it, so I don't think it will be confusing. And if it is, I'll seek advice here.

Spirit Rider
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Sun Aug 11, 2019 6:51 pm

abyan wrote:
Sun Aug 11, 2019 12:33 pm
On this second part, are you therefore saying that my SEP IRA contributions rolled over to my Solo401k can be converted to Roth at any time, but my actual contributions directly to my Solo401k have to wait until I'm 59 1/2? If so, don't my IRA rollover contributions become increasingly difficult to calculate over time -- not the basis, but the growth?

And Scwhab definitely said nothing about that.
Yes, these are standard withdrawal/rollover regulations that all 401k plans and custodians must follow. Note: It is only non-hardship in-service withdrawals/rollovers of employee elective contributions that are prohibited prior to age 59 1/2. They are permitted for employer contributions provided the plan document allows. Last time I checked, Schwab's plan document allows the non-hardship in-service withdrawals/rollovers of employer contributions with certain restrictions. You must wait two (2) years from the date of contribution before your can withdrawal/rollover employer contributions until you have had the plan five (5) years. Then you can immediately rollover.

You don't have to worry about doing any calculations. Schwab is required to have separate accounting for rollover contributions and earnings. They may or may not provide you those balances as separate accounts, but they must internally track them.

Here is some of the revelent sections of Schwab's Individual 401k SPD

In-Service Distributions
You may request a distribution of your rollover and transfer contributions at any time. You may also request a distribution of your Deferrals when you die, you become Disabled, the Plan terminates, or you reach age 59 1/2.

You may request a distribution from any Employer contributions while you are still employed if you have participated in the Plan for at least five years or the amounts being paid out have been in the Plan for at least two years.


Note: The reference to transfers in this context is misleading. This only applies to transfers between 401k plans. Your transfers are within the same 401k plan and the prohibition still applies to employee elective contributions.

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unclescrooge
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by unclescrooge » Sun Aug 11, 2019 7:09 pm

abyan wrote:
Sat Aug 10, 2019 10:36 am
I agree. No one has given NThomas any problems, but I suspect he hasn't been audited yet. If an audit were to occur, I'd rather not be in the position of having to defend the legitimacy of my entire Solo 401k. Better to be safe and fix it in the manner that SpiritRider has suggested.
Which entity audits solo 401k plans?

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Sun Aug 11, 2019 7:12 pm

Dear lord, this stuff is complicated. I’m saving this thread and visiting you all again some day if and when I decide to convert any of the SOLO401K to a Roth. Thanks again all, especially Spirit Rider, for being so helpful. I’ll let you all know what Schwab tells me tomorrow.

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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by Spirit Rider » Sun Aug 11, 2019 8:37 pm

unclescrooge wrote:
Sun Aug 11, 2019 7:09 pm
abyan wrote:
Sat Aug 10, 2019 10:36 am
I agree. No one has given NThomas any problems, but I suspect he hasn't been audited yet. If an audit were to occur, I'd rather not be in the position of having to defend the legitimacy of my entire Solo 401k. Better to be safe and fix it in the manner that SpiritRider has suggested.
Which entity audits solo 401k plans?
Both the IRS and DOL can audit 401k plans with non-spouse employees, but only the IRS audits one-participant 401k plans. Even then it is a relatively rare event. Rarer still if the plan's assets are too small to require filing Form 5500-EZ. The reason for catching and fixing plan errors early is to void filing fees and if not found until an audit, sanctions.
  • Most insignificant operational errors like this one (failure to follow the terms of the plan) can be corrected easily via the self-correction program (SCP) with no IRS involvement or fees.
  • If the error can not be self-corrected, you must use the Voluntary Correction Program (VCP) within two years. You must file the correction with the IRS and pay a VCP user fee (< $500K = $1500, $500K - $10M = $3000, > $10M = $3500).
  • If an error is determined during an audit, there will be a sanction of no < the VCP fee. I can't imagine what error(s) a one-participant 401k plan would have to have to get the plan disqualified.
The bottom line. If you find you have a plan error, correct it in a reasonably timely manner and in most cases it will not involve the IRS and cost you nothing. One notable exception is late or failure to file Form 5500-EZ. Even with the penalty relief program that is $500/year up to a maximum of $1500. While there is a very low probability of audit, it is far better to fix problems as they arise and not risk consequences later.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Mon Aug 12, 2019 10:54 am

UPDATE:

So, Schwab tells me that while the new SOLO 401k plan was set up as an amendment to my existing Solo401k plan at Vanguard, and not a new plan -- which is good -- I did however make some mistakes in the documents so we decided it was easier to just terminate the account at Schwab and start over, since the account has no money in it, no rollovers, nothing. I also called Vanguard and told them to terminate the direct rollover of the SEP IRA. So that's done.

But there's a wrinkle. I have a single-member LLC that is treated as a disregarded entity for tax purposes -- I pay taxes as an individual using my personal social security number, I just use the LLC for legal protection. I set up the LLC in 2017. I set up the Solo401k at Vanguard in 2015. At the time I set up the Solo401k at Vanguard, Vanguard only wanted an EIN for the plan itself, so I went to the IRS site and got one for the plan, which I then provided them.

Schwab is saying that to set up the new Solo401k account at Schwab (I realize I may be using the wrong terminology here, so forgive), as I now am a single-member LLC, Schwab wants the new Solo401k account set up with the "adoption employer" as my new LLC, and thus the adoption employer's federal tax ID as the EIN for my LLC, which I don't have because I have never needed one for the LLC. I called the IRS and they say there's no issue with me getting an EIN for my single-member LLC if Schwab wants it, it won't affect how I pay my taxes.

Questions:

1. Is Schwab correct, and I should just go ahead and get an EIN for my LLC, and give it to Schwab for the Solo401k that will now be over there?

2. Should the EIN for my Solo 401k be the same as the EIN for my single-member LLC? I've read conflicting information online. And was assuming the two should be different. Vanguard is already using the EIN that I got specifically for the Solo 401k two years back. I'm assuming for Schwab, I should just keep the EIN for the plan the same, but use my LLC as the "adoption employer," and the LLC's new EIN where Schwab asks for the adoption employer's EIN. Yes?

3. On Schwab's form for setting up the new account, it asks me what "type of business" I have. Is this an "LLC" or a "sole proprietorship" since I have an LLC but it's disregarded for tax purposes?
I recall that on other business forms, I've been told to pick sole proprietor and not LLC. But since I'm now giving an LLC EIN to Schwab, do I just tick the box that says LLC?
Last edited by abyan on Mon Aug 12, 2019 1:21 pm, edited 7 times in total.

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GrowthSeeker
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by GrowthSeeker » Mon Aug 12, 2019 10:59 am

Whatever you're experiencing, I will be too, most likely.
How can the EIN for your plan NOT be the EIN for your business?
Just because you're paranoid doesn't mean they're NOT out to get you.

abyan
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by abyan » Mon Aug 12, 2019 11:13 am

GrowthSeeker wrote:
Mon Aug 12, 2019 10:59 am
How can the EIN for your plan NOT be the EIN for your business?
You might be right. But as I pay taxes using my social and not an EIN, in many situations when asked if I'm an LLC or a sole proprietor, I've been told to put down Sole Proprietor. So I wasn't sure in this case.

It also struck me as odd since Vanguard just told me they don't ask for EIN for the LLC when you set up a new plan with them. Also, I asked them with my current plan at Vanguard, if I kept it there, would I need to give them the EIN if I update the name of the business I operate under, again they said no, since they don't take the business' EIN.

But what confuses me is that under plan role administration on VG's Web site there are two things listed:
Plan Sponsor -- Then it lists my name -- Then it lists the EIN I got for the plan itself.
Plan Administrator -- Then it lists my name -- Then it lists my personal social security number.

I'm trying to figure out if either of those should be changed now that I have the single-member LLC, and if so, again do I need to then give them an EIN for that new business name (new as of 2017).

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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by HomeStretch » Mon Aug 12, 2019 11:45 am

I did not find the IRS and other guidance clear when I set up my two-person LLC (which is a partnership for tax reporting purposes) and my Solo 401k. In my case, I had to obtain an EIN for the partnership to file Federal tax returns and I used the same EIN for my Solo 401k plan documents with Fidelity.

It’s not clear when you go to the IRS website to set up an EIN either. In @abyan’s case, when you go through the IRS.gov EIN assistant, 3 of the choices look like possibilities - “sole proprietorship”, “LLC”, or “view additional types/then select employer plan 401k”. It sounds like you selected the last option and used that EIN for your solo 401k plan documents/Form 5500 whereas you use your SSN when you include your sole proprietor earnings on your personal income tax returns.

I *think* you’re fine to use that EIN for your Solo 401k. But hopefully Spirit Rider will be kind enough to weigh in on this with more expertise.

Once you both get the setup done, it’s really not that hard to maintain the Solo 401k. I think the additional 401k savings and backdoor Roth are worth it in my case.

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unclescrooge
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Re: Which Brokerage for solo 401k (to roll IRA into) pre Backdoor Roth

Post by unclescrooge » Mon Aug 12, 2019 12:19 pm

Spirit Rider wrote:
Sun Aug 11, 2019 8:37 pm
unclescrooge wrote:
Sun Aug 11, 2019 7:09 pm
abyan wrote:
Sat Aug 10, 2019 10:36 am
I agree. No one has given NThomas any problems, but I suspect he hasn't been audited yet. If an audit were to occur, I'd rather not be in the position of having to defend the legitimacy of my entire Solo 401k. Better to be safe and fix it in the manner that SpiritRider has suggested.
Which entity audits solo 401k plans?
Both the IRS and DOL can audit 401k plans with non-spouse employees, but only the IRS audits one-participant 401k plans. Even then it is a relatively rare event. Rarer still if the plan's assets are too small to require filing Form 5500-EZ. The reason for catching and fixing plan errors early is to void filing fees and if not found until an audit, sanctions.
  • Most insignificant operational errors like this one (failure to follow the terms of the plan) can be corrected easily via the self-correction program (SCP) with no IRS involvement or fees.
  • If the error can not be self-corrected, you must use the Voluntary Correction Program (VCP) within two years. You must file the correction with the IRS and pay a VCP user fee (< $500K = $1500, $500K - $10M = $3000, > $10M = $3500).
  • If an error is determined during an audit, there will be a sanction of no < the VCP fee. I can't imagine what error(s) a one-participant 401k plan would have to have to get the plan disqualified.
The bottom line. If you find you have a plan error, correct it in a reasonably timely manner and in most cases it will not involve the IRS and cost you nothing. One notable exception is late or failure to file Form 5500-EZ. Even with the penalty relief program that is $500/year up to a maximum of $1500. While there is a very low probability of audit, it is far better to fix problems as they arise and not risk consequences later.
Thanks!

And correct me if I'm wrong, but the 5500-ez just needs to be filed on time, and not necessarily filed correctly, if my goal is to avoid the penalties?

Asking for a friend :mrgreen:

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