E*Trade Solo 401k - No More Roth Contributions Allowed?

[gopack3]

I just got this email from E*Trade regarding my i401k plan and am a little confused - is this basically saying that Roth 401k contriubtions are no longer allowed? Or only that mega backdoor Roth contributions?

We are writing to inform you that, due to business considerations, some documents and processes associated with the Cycle 3 qualified retirement plan restatement process and newly opened plans at E*TRADE have been amended. As a result, even though you previously restated or recently opened your qualified plan, action is required by July 31, 2022. We apologize for any inconvenience this may cause.

Attention: All qualified retirement plan employers

Effective immediately, the Trust and Custodial Agreement must be completed by the employer and kept with plan records for all qualified retirement plans established using plan documents made available by E*TRADE, even if the plan is exempt from the trust requirement under ERISA and no trustee is appointed for the plan. We are working to update all necessary plan documents to reflect this change, but we ask that you follow the instructions below in the meantime.

Action required: Since you already restated your plan or recently opened a new plan, you will need to complete the Trust and Custodial Agreement for your records (if you haven’t done so already). There is no need to return this document to E*TRADE.

Attention: Individual 401(k) and Roth Individual 401(k) employers only

Effective immediately, non-deductible employee contributions are no longer an eligible contribution type for Individual 401(k) and Roth Individual 401(k) plans established using the plan documents made available by E*TRADE. We’ve updated Section 3, Part C of our Adoption Agreement to "No" to address this change.

Action required:
If you already restated your plan or recently opened a new plan, and your plan is an Individual 401(k) or Roth Individual 401(k), you will need to complete the steps outlined below. Exception: If you previously selected "No" in Section 3, Part C of the Adoption Agreement, no action is required of you. Please note that all forms and documents referenced below are available at etrade.com/restatement.

1.Keep a copy of this notice with your plan documents.

2. If you previously selected "Yes" in Section 3, Part C of your Adoption Agreement or did not make a selection, you will be required to a) complete and sign the updated Adoption Agreement and keep it with your plan records; and b) update your Summary Plan Description and provide a copy to all plan participants. The Summary Plan Description is included at the beginning of your Basic Plan Document.

3. Provide us with an updated Plan Restatement Certification Form and updated Adoption Agreement by completing, signing, and submitting the updated forms at etrade.com/DocuSignPPA. Alternatively, you can fax the forms to 866-650-0003 (+1 678 624 6950 from outside the US); securely upload them at documentupload.etrade.com ; or mail them to E*TRADE Securities LLC, PO Box 484, Jersey City, NJ 07303-0484. If you do not provide these forms to us, by virtue of this notice, you will nonetheless be subject to the updated Adoption Agreement, including its provision that non-deductible employee contributions are not supported by the plan documents made available by E*TRADE.

Please note:
Any required plan updates must be completed by the plan sponsor (the employer). If you are not self-employed or the plan sponsor, please send this packet to your employer for completion.
View the restatement instructions for a complete guide to Cycle 3 restatement. As noted above, we are in the process of updating the Trust and Custodial Agreement language.
If you have more than one plan, be sure to complete any required updates for each.
Once again, we apologize for any inconvenience, and we thank you for the opportunity to serve you and your employees. If you need assistance, call an E*TRADE Small Business Plan Specialist at 888-402-0654, weekdays from 7 a.m. to 8 p.m. ET.

[Duckie]

I just got this email from E*Trade regarding my i401k plan and am a little confused - is this basically saying that Roth 401k contriubtions are no longer allowed? Or only that mega backdoor Roth contributions?
<snip>
"Effective immediately, non-deductible employee contributions are no longer an eligible contribution type for Individual 401(k) and Roth Individual 401(k) plans established using the plan documents made available by E*TRADE. We’ve updated Section 3, Part C of our Adoption Agreement to "No" to address this change."

To me that mean mega backdoor Roth contributions are no longer allowed, but I didn't know they WERE allowed before. Have you tried to contact E*Trade for clarification? If Section 3, Part C covers non-deductible contributions have you looked at the agreement to see if one of the other parts covers Roth contributions?

[tioscrooge]

[Thread merged into here --admin LadyGeek]

I received an email from etrade today.

"Effective immediately, non-deductible employee contributions are no longer an eligible contribution type for Individual 401(k) and Roth Individual 401(k) plans established using the plan documents made available by E*TRADE. We’ve updated Section 3, Part C of our Adoption Agreement to "No" to address this change."
.....
"Provide us with an updated Plan Restatement Certification Form and updated Adoption Agreement by completing, signing, and submitting the updated forms at etrade.com/DocuSignPPA. Alternatively, you can fax the forms to 866-650-0003 (+1 678 624 6950 from outside the US); securely upload them at documentupload.etrade.com ; or mail them to E*TRADE Securities LLC, PO Box 484, Jersey City, NJ 07303-0484. If you do not provide these forms to us, by virtue of this notice, you will nonetheless be subject to the updated Adoption Agreement, including its provision that non-deductible employee contributions are not supported by the plan documents made available by E*TRADE."

Seems like I will be shopping for plan document service again. I had used Ascensus plan documents in the past. They used to be approx $700 + $220 per year. I have not done a recent price comparison. Is there any better priced options are out there for individual 401k plan document services that provide non deductible aftertax employee contributions?

Thank you,

[worthit]

if you are just looking for a non-prototype plan document generator and self-administering the accounts yourself, then there are couple of them that I looked at - mysolo401k.net and discountsolo401k.com.

[worthit]

I just got this email from E*Trade regarding my i401k plan and am a little confused - is this basically saying that Roth 401k contriubtions are no longer allowed? Or only that mega backdoor Roth contributions?
<snip>
"Effective immediately, non-deductible employee contributions are no longer an eligible contribution type for Individual 401(k) and Roth Individual 401(k) plans established using the plan documents made available by E*TRADE. We’ve updated Section 3, Part C of our Adoption Agreement to "No" to address this change."

To me that mean mega backdoor Roth contributions are no longer allowed, but I didn't know they WERE allowed before. Have you tried to contact E*Trade for clarification? If Section 3, Part C covers non-deductible contributions have you looked at the agreement to see if one of the other parts covers Roth contributions?

Yes, Etrade started allowing non-deductible post tax contributions and there were some posts regarding that within the last couple of years from some forum members successfully implementing it. I was even considering switching to Etrade.

[anon_investor]

Is this part of a larger Morgan Stanley plan to force former mega backdoor Roth dollars into E*Trade taxable accounts to some how create more money making opportunities?

[LadyGeek]

I merged tioscrooge's thread into the ongoing discussion. The combined thread is in the Personal Finance (Not Investing) forum (Solo 401(k)).

(Thanks to the member who reported the post and provided a link to this thread.)

[KCjason]

Although threads are merged, I'm specifically replying to OP regarding the issue of the ability to continue making Roth contributions to an E-Trade i401k. I also received the email and was/am a bit confused about it.

Looking at Section 3, Part C, as it says in the email, it does seem this might refer only to the ability to make after tax non-roth contributions. I didn't realize it, but apparently there is a difference between after tax 401k contributions and roth contributions. Section 3, Part A, also specified elective deferrals with the suboption (a) indicating roth elective deferrals would be allowed. Given that the email directs us only to Part C, I'm thinking this means that the ability to make roth contributions as previous remains.

I'm going to try and confirm this with someone at E-Trade, but please reply here if anyone has more concrete info and/or better understanding of this specific issue.

[diglactic]

Created an account just to reply to this.

Given that the email directs us only to Part C, I'm thinking this means that the ability to make roth contributions as previous remains.

This is also my understanding, which seems entirely stupid. Small business line is closed for the night and can't seem to send new "secure messages" online anymore. Will call back tomorrow unless someone here gets an answer first.

Here's the original section 3 language, for reference:

Part A. Elective Deferrals
Indicate whether or not you will permit Employees to make Elective Deferrals. If your plan allows Elective Deferrals, indicate whether or not Elective Deferrals can be designated as Roth Contributions (after-tax) in addition to Pre-Tax Elective Deferrals.

Part B. Employer Profit Sharing Contributions
There are no elections required for Part B. Refer to the Basic Plan Document for information regarding this section.

Part C. Nondeductible Employee Contributions
Indicate whether or not you will permit Employees to make non-deductible (after-tax) contributions.

Important! If non-deductible employee contributions are permitted in this plan, it is the responsibility of the employer, plan administrator, and/or trustee (if applicable) to maintain separate accounting for these contributions. E*TRADE will not be responsible for providing separate accounting of non-deductible employee contributions and will not be responsible for tracking earnings for those contributions separately or displaying them on account statements. It is the employer and/or plan administrator’s responsibility to track and report all contributions and determine amounts eligible for distribution. These contributions do not receive the same tax treatment as Roth Elective Deferrals and will require separate accounting. Please contact a tax professional or visit irs.gov for additional guidance.

[tioscrooge]

if you are just looking for a non-prototype plan document generator and self-administering the accounts yourself, then there are couple of them that I looked at - mysolo401k.net and discountsolo401k.com.

Thank you. This is exactly what I was looking for. Yes I will administer the plan myself, but was looking for just the document service.

I two tried calling E*Trade customer service yesterday, and was on hold for an hour before I gave up.

Probably they’re getting bombarded by many people.

[simas]

if you are just looking for a non-prototype plan document generator and self-administering the accounts yourself, then there are couple of them that I looked at - mysolo401k.net and discountsolo401k.com.

Thank you. This is exactly what I was looking for. Yes I will administer the plan myself, but was looking for just the document service.

I two tried calling E*Trade customer service yesterday, and was on hold for an hour before I gave up.

Probably they’re getting bombarded by many people.

I used and am using discountsolo401k and am happy with the service. Have not used mysolo401k so no feedback there.

[gopack3]

after doing some digging, it does appear that this only applies to the mega backdoor roth (which I didn't even know was possible), and not just regular roth contributions. very cool of e*trade to make me freak out for a few hours yesterday

and on top of all that, it doesn't really seem like you even need to restate your plan agreement, and that the email is notification enough as long as you maintain it in your personal records.

[diglactic]

after doing some digging, it does appear that this only applies to the mega backdoor roth

Called to confirm, and you're indeed correct. I had never even heard of this term before.

(which I didn't even know was possible)

Yup, so the confusing bit is me assuming "after-tax" equals Roth, but as this article states perfectly:

While all Roth contributions are after-tax, not all after-tax contributions are Roth.

https://www.solo401k.com/voluntary-afte ... ributions/

TL;DR, if you were only ever contributing to your Roth using standard limits (and not doing any "after-tax" contributions, which you'd be aware of if you were doing it), you never needed to check off "Yes" for Section 3, Part C and this change doesn't affect you (although I will be updating my documents for my records out of habit).

Phew!

[KCjason]

Thanks for all the replies here to clarify the situation!