Rolling over old 401k into a solo 401k. Pitfalls?

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renter
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Rolling over old 401k into a solo 401k. Pitfalls?

Post by renter » Tue Jan 15, 2013 11:22 pm

Is there any downside to rolling over a 401k account from a prior employer to one’s solo 401k account? I’m ok with being out of the market during the transition period, and fund choices and costs will be very similar. It seems to be a good idea, but not sure if there are any drawbacks. The 401k administrator of my solo 401k says it can accept the rollover.

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JamesSFO
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by JamesSFO » Wed Jan 16, 2013 12:00 am

Likely none, only if your old 401K had some special offerings that you cannot replicate in your Solo 401K

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renter
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by renter » Wed Jan 16, 2013 12:15 am

Thanks for the reply. No, they are mostly equivalent. It seems to me that I'm better off having direct control over my 401k rather through a former employer. Am I right that doing this won't have any bearing on tax free backdoor ROTHs?

lawman3966
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by lawman3966 » Wed Jan 16, 2013 12:29 am

Solo 401K plans are not subject to ERISA, and therefore offer less creditor protection than "standard" 401K employer plans. Thus, if creditor protection is important you, this is an important factor to bear in mind.

http://www.axa-equitable.com/plan/busin ... plans.html

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renter
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by renter » Wed Jan 16, 2013 12:39 am

I had assumed that a 401k was a 401k for purposes of creditor protection, but I'm no expert in this area and didn't research. Thanks for pointing that out, I guess that's one factor to weigh.
lawman3966 wrote:Solo 401K plans are not subject to ERISA, and therefore offer less creditor protection than "standard" 401K employer plans. Thus, if creditor protection is important you, this is an important factor to bear in mind.

http://www.axa-equitable.com/plan/busin ... plans.html

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JamesSFO
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by JamesSFO » Sat Jan 19, 2013 9:28 pm

The linked article says "MAY" and to consult a tax professional.

Saving$
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by Saving$ » Sun Jan 20, 2013 2:13 pm

Pitfalls:
1. ERISA protection as noted above.
2. If your Solo 401k reaches $250k, you are required to file form 5500. Just one more hoop to jump through; one more thing that can go wrong. Some Solo's may reach this within 4-5 years without rollover of another 401k, because the Solo allows up to around $50k year contribution.

Strategy: If old employers 401k has decent fund offerings with low expense ratio, keep it. If ERISA protection is an issue, keep it forever. If ERISA protection is not an issue, keep old employers 401k until your solo reaches the $250k threshold on it's own. At that time you are filing the 5500 anyway. You have just put off the filing for a few years by not doing the rollover for a few years.

Benefits:
If you have pretax TIRA money, and get your Solo with someone who allows pretax IRA rollovers, you can roll your pretax TIRA into your Solo, making you eligible for a backdoor Roth.

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JamesSFO
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by JamesSFO » Wed Jan 23, 2013 12:47 am

Actually the ERISA protections are present according to this article in most states for Solo 401Ks... http://www.irafinancialgroup.com/solo40 ... ection.php

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renter
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by renter » Wed Jan 23, 2013 1:49 am

Thanks for all the feedback. Very helpful. I've decided not to roll over and keep it separate for the time being.

freebeer
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by freebeer » Tue Jan 21, 2014 11:57 pm

One upside of rolling over not mentioned: if your left your old employer before age 55 you can't withdraw until 59 1/2 without paying penalty. If you roll over to new employer and quit or are fired during the year you turn 55 or later you can withdraw it all penalty-free.

motorcyclesarecool
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by motorcyclesarecool » Thu Nov 07, 2019 5:07 am

Saving$ wrote:
Sun Jan 20, 2013 2:13 pm
2. If your Solo 401k reaches $250k, you are required to file form 5500. Just one more hoop to jump through; one more thing that can go wrong. Some Solo's may reach this within 4-5 years without rollover of another 401k, because the Solo allows up to around $50k year contribution.
Sorry to resurrect an old thread but I have a question stemming from this precise topic: If I were to open a solo §401(k) for a sideline hobby / business at E*Trade, which appears to allow in-service rollovers to IRAs or other §401(k)s, couldn’t I continuously roll money out to my employer’s §401(k) plan annually, or even to IRAs (less ideal for backdoor Roth but still possibly worthwhile) to avoid ever reaching $250,000 of assets in my Solo §401(k) plan?
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

HomeStretch
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by HomeStretch » Thu Nov 07, 2019 5:19 pm

motorcyclesarecool wrote:
Thu Nov 07, 2019 5:07 am
Sorry to resurrect an old thread but I have a question stemming from this precise topic: If I were to open a solo §401(k) for a sideline hobby / business at E*Trade, which appears to allow in-service rollovers to IRAs or other §401(k)s, couldn’t I continuously roll money out to my employer’s §401(k) plan annually, or even to IRAs (less ideal for backdoor Roth but still possibly worthwhile) to avoid ever reaching $250,000 of assets in my Solo §401(k) plan?
The E*Trade prototype Solo 401k does allow in-plan rollovers from Traditional to Roth. Are you sure the plan also allows in-service rollovers to an employer 401k or Roth IRA? I didn’t think that was allowed by the plan, at least not if you are under age 59-1/2. But if it does, you certainly could keep the balance below $250k to avoid the Form 5500 reporting threshold. There is a learning curve year 1 but aside from that the Form 5500 is not difficult to complete or file..

My response will bump your thread and perhaps someone else will weigh in on this.

motorcyclesarecool
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by motorcyclesarecool » Sat Nov 09, 2019 2:43 pm

HomeStretch wrote:
Thu Nov 07, 2019 5:19 pm
motorcyclesarecool wrote:
Thu Nov 07, 2019 5:07 am
Sorry to resurrect an old thread but I have a question stemming from this precise topic: If I were to open a solo §401(k) for a sideline hobby / business at E*Trade, which appears to allow in-service rollovers to IRAs or other §401(k)s, couldn’t I continuously roll money out to my employer’s §401(k) plan annually, or even to IRAs (less ideal for backdoor Roth but still possibly worthwhile) to avoid ever reaching $250,000 of assets in my Solo §401(k) plan?
The E*Trade prototype Solo 401k does allow in-plan rollovers from Traditional to Roth. Are you sure the plan also allows in-service rollovers to an employer 401k or Roth IRA? I didn’t think that was allowed by the plan, at least not if you are under age 59-1/2. But if it does, you certainly could keep the balance below $250k to avoid the Form 5500 reporting threshold. There is a learning curve year 1 but aside from that the Form 5500 is not difficult to complete or file..

My response will bump your thread and perhaps someone else will weigh in on this.
Ah, that would make sense.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

tigerone
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Re: Rolling over old 401k into a solo 401k. Pitfalls?

Post by tigerone » Sat Nov 09, 2019 3:13 pm

Form 5500 is very easy to fill in. And after the first year, its trivial to update and file in subsequent years.

You can of course roll over your entire Solo 401K to a future employer 401K if you want to consolidate accounts and eliminate this IRS filing. They have to allow that if you terminate your Solo 401K plan. Not sure about the question of partial rollovers ("in service" distributions).

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