What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

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jenbooks13
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What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

Post by jenbooks13 » Wed May 16, 2018 9:35 am

I have an old Keogh with just $800 in it that I have done nothing with in years.
I did not think I could transfer it to Vanguard when last year I transferred my brokerage and Roth and set up a 401K, as I finally started getting my finances and savings on an annual plan. I contributed to the Roth and the 401K this year.

I wanted to get rid of the old Keogh, a person at Fidelity just suggested I take out the money but leave the account there, empty and not officially terminate it because if I do, the IRS will terminate my Vanguard 401K as well. He also said my Keogh is actually a 401K but Fidelity never updated their terms or names.

I told him this sounded like bad advice--and I found it hard to believe the IRS would terminate the Vanguard one which is a different plan, and I am not sure they have the same rules, either.

Advice? When I looked on the forum here it said notifying the IRS is complicated and not legally necessary. But surely I must terminate the plan at this point, which is pretty much useless and I've done nothing with it anyway in many many years.
Thanks!

pkcrafter
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Re: What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

Post by pkcrafter » Wed May 16, 2018 1:41 pm

When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Spirit Rider
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Re: What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

Post by Spirit Rider » Wed May 16, 2018 2:10 pm

If by 401k at Vanguard you mean an Individual 401k. You already have a bit of a problem. A business can not maintain more than one 401k plan covering the same employees. You should have amended your existing Fidelity plan to the Vanguard i401k. You would have done that by simply selecting to amend an existing plan instead of creating a new plan on the Vanguard i401k Adoption agreement.

Then you could have rolled the balance to an employer 401k plan that accepts rollovers, a traditional IRA, a Roth conversion or the least favorable choice to make a non-qualified taxable withdrawal subject to a 10% EW penalty. These options are also available when you terminate the plan.
jenbooks13 wrote:
Wed May 16, 2018 9:35 am
Advice? When I looked on the forum here it said notifying the IRS is complicated and not legally necessary. But surely I must terminate the plan at this point, which is pretty much useless and I've done nothing with it anyway in many many years.
I don't know where you saw that notifying the IRS is not legally necessary. You must file a final Form 5500-EZ by the last day of the seventh month following when all assets in terminated plan have been withdrawn/rolled over. This is true regardless of whether a year-end balance was > $250K.

The IRS penalty for late filing of a 5500-series return is $25 per day, up to a maximum of $15,000. Although, there is a Form 5500-EZ penalty relief program. $500/plan year with a maximum of $1500.

As pointed out by pkcrafter: A qualified plan must be completely up to date with a required amendments. Your first call should be to Fidelity who should be able to tell you if your plan is up to date. Who originally set up your Keough plan? Are they still available. If not, I suggest you contact an employer retirement plan specialist. This will not likely be a CPA or tax lawyer. You probably want to look for a local Third Party Administrator (TPA).

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Taylor Larimore
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Re: What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

Post by Taylor Larimore » Wed May 16, 2018 2:18 pm

jenbooks13:

Welcome to the Bogleheads Forum!

My wife had on old Keogh with a relatively small balance. For the purpose of "Simplicity," we simply closed the account and put the money elsewhere.

Please read my "Simplicity" link below.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

jenbooks13
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Re: What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

Post by jenbooks13 » Wed May 16, 2018 2:29 pm

Hi SpiritRider,

I opened it myself--I'm a freelancer, many years ago and it has about $800 in it. I haven't done anything with it in ten or maybe fifteen years. I am not sure I trust Fidelity which told me to just take out the $$ and not terminate the plan. Doesn't that sound wrong?

Do I really need an employer plan specialist to close out an $800 Keogh. And when I wanted to transfer, nobody explained this. So now I have to do it properly.

The other weird thing is that this Fidelity guy today said it WAS the exact same as a 401K just that "fidelity has not updated their website in 30 years." Does this make any sense? I am pretty sure it is NOT the exact same, and why would he say it's just the fault of Fidelity not updating their website?

I actually took his name, first and last, because I thought his advice was probably unsound.

chambers136
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Re: What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

Post by chambers136 » Wed May 16, 2018 2:38 pm

He is correct. Keough is what Fidelity calls their Self employed 401k. My wife transferred here SE401k last year and that’s just how they refer to it

JBTX
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Re: What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

Post by JBTX » Wed May 16, 2018 2:42 pm

10+ Years ago I had a couple of Keogh plans at Fidelity. I eventually just rolled the balances over to a rollover IRA and ultimately closed the accounts/ plan. Off hand I don’t recall specifically what I did to close it. I just followed instructions of the fidelity retirement specialist, for better or for worse.

jenbooks13
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Re: What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

Post by jenbooks13 » Wed May 16, 2018 2:50 pm

Hi Taylor, that sounds reasonable--i'm on with Fido now. How did you close it?

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Taylor Larimore
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Re: What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

Post by Taylor Larimore » Wed May 16, 2018 2:55 pm

jenbooks13 wrote:
Wed May 16, 2018 2:50 pm
Hi Taylor, that sounds reasonable--i'm on with Fido now. How did you close it?
Ask Fido. Every company is different.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

snowman
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Re: What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

Post by snowman » Wed May 16, 2018 3:11 pm

OP,

I just went through it several months ago, as I have terminated my business. I did everything through Fidelity, they have knowledgeable people. Fidelity converted keogh to traditional IRA, and I also filed form 5500-EZ with the IRS.

The problem you have is that you are not supposed to own more than one i401k at a time, exactly how spirit rider told you. I know it's old account and it's a small amount, but that is a no-no. I honestly do not know how to deal with that issue. Maybe call IRS and ask them, or contact CPA.

Good luck.

jenbooks13
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Re: What's the Safest Easiest Way to Terminate an Old KEOGH at Fidelity

Post by jenbooks13 » Wed May 16, 2018 3:13 pm

Hey guys, I'm on with a nice Fido guy now who is advising me as to what to do. First--I did do a 2015 amendment (now I have to go find my copy) and second , I don't remember if I did the 2008 one, so I'm going to redo it if I have to, then I have to file an amendment, which I should have done originally, but I think to my Vanguard plan. He said it is lots of technicalities but the good thing is that I did NOT illegally close this plan. I wasn't paying attention as it's so little, and apparently it's true that they now call this their 401K but they didn't explain that on the website, it just shows up there as a keogh.

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