Rollover Former Employer 401k into Individual 401k

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appleseed88
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Rollover Former Employer 401k into Individual 401k

Post by appleseed88 »

I have both traditional and Roth contributions in my former employer 401k and I am now self-employed and would like to open my first solo 401k.

Is it possible to rollover the old employer Roth 401k dollars into the solo 401k, or can I only rollover old employer 401k Roth money into a Roth IRA?

I am assuming the traditional pre-tax contributions from the old employer 401k is straightforward to rollover into the solo 401k.

I have not yet opened the new solo 401k. I'm leaning towards using Vanguard as I already have both a traditional IRA and Roth IRA account with Vanguard for myself and my wife.

I am mostly a passive index fund investor. Self-employed income is $300k plus. I have always done backdoor Roth through Vanguard when I was a W2 employee. Will it still be possible to continue to do backdoor Roths with Vanguard if I also have a solo 401k with them?

What is the best way to go about this?
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retiredjg
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Re: Rollover Former Employer 401k into Individual 401k

Post by retiredjg »

If your Solo 401k plan allows and is set up for both traditional and Roth contributions, you should be able to roll both your traditional and Roth 401k accounts into the Solo 401k.

Not every plan offers what you want. You mention Vanguard and I believe they do offer what you want.
lakpr
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Re: Rollover Former Employer 401k into Individual 401k

Post by lakpr »

I would caution you against rolling over the Employer 401(k) funds into the Individual 401(k) funds, only because for the i-401k YOU ARE THE PLAN ADMINISTRATOR. My understanding is that once the balance exceeds $250k in the i-401k plan (and with the level of income you are expecting -- $300k -- and the proposed rollover, you will exceed that threshold quite easily), you have to be extra vigilant in filing all the paperwork with the IRS in a timely manner. Penalties are severe if you do not meet the deadlines.

Plus, Employer 401k plans are ERISA-protected; i-401k plans are not. God forbid if there is a lawsuit against you and there is a judgment against you, the entire i-401k may be seized to satisfy the judgment (this is a general comment; state laws regarding asset protection may vary and give you a bit more protection than what I am indicating here).
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retiredjg
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Re: Rollover Former Employer 401k into Individual 401k

Post by retiredjg »

appleseed, is there a reason you need to rollover the old plan? High costs or something? If not, I agree it could be a good idea to just leave it where it is.
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appleseed88
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Re: Rollover Former Employer 401k into Individual 401k

Post by appleseed88 »

The old employer 401k doesn’t have the best funds to pick from and the fees are high. The best I could find the last time I looked was VTSAX.

There is only $150k in the old 401k so I am not yet at the $250k mark for having more paperwork to do.

If I choose to leave the old 401k as it is, can I still open a new solo 401k?
Fpdesignco
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Re: Rollover Former Employer 401k into Individual 401k

Post by Fpdesignco »

appleseed88 wrote: Tue Nov 22, 2022 6:25 pm I have both traditional and Roth contributions in my former employer 401k and I am now self-employed and would like to open my first solo 401k.

Is it possible to rollover the old employer Roth 401k dollars into the solo 401k, or can I only rollover old employer 401k Roth money into a Roth IRA?

I am assuming the traditional pre-tax contributions from the old employer 401k is straightforward to rollover into the solo 401k.

I have not yet opened the new solo 401k. I'm leaning towards using Vanguard as I already have both a traditional IRA and Roth IRA account with Vanguard for myself and my wife.

I am mostly a passive index fund investor. Self-employed income is $300k plus. I have always done backdoor Roth through Vanguard when I was a W2 employee. Will it still be possible to continue to do backdoor Roths with Vanguard if I also have a solo 401k with them?

What is the best way to go about this?
I would not roll it over into a i401k - to much red tape. If your objective is to get it away from the employer put it in your IRA. Most states (you need to validate) have similar ERISA creditor protections for IRAs today - also some also apply to i401k to contradict some statements made on here as it’s really a problem for anything outside of employer covered ERISA plans.
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retiredjg
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Re: Rollover Former Employer 401k into Individual 401k

Post by retiredjg »

appleseed88 wrote: Tue Nov 22, 2022 8:20 pm The old employer 401k doesn’t have the best funds to pick from and the fees are high. The best I could find the last time I looked was VTSAX.

There is only $150k in the old 401k so I am not yet at the $250k mark for having more paperwork to do.

If I choose to leave the old 401k as it is, can I still open a new solo 401k?
You only need one or maybe two usable funds for the old plan to be worth keeping. VTSAX is a good choice if the costs are low. Also, a stable value fund (for which the ER does not matter) is often a good choice. Just how high are the fees?

Yes, you can open a new solo 401k after you leave the old employer. That would not be unusual at all.

Maybe you could leave it, go ahead and open your Solo 401k and do a rollover (old to new) sometime later, after you are satisfied you have picked a custodian you want to stay with and after you are accustomed to being the administrator for your own plan. Or maybe then you'll decide to just leave it.
lakpr
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Re: Rollover Former Employer 401k into Individual 401k

Post by lakpr »

Looking at the first post from the OP when he joined the board, it seems his 401k plan has T Rowe Price funds. The cheapest fund indeed was the S&P 500 index fund, with a stated ER of 0.19%. Target date funds had 0.5% to 0.7% ER, and a stable value fund is offered with a stated ER of 0.45% (yes I know the ER doesn't matter for SVF).

In my opinion that is not bad at all, and if there are no (significant) other fees levied, it is worth leaving the old plan alone. You can use just the S&P 500 index fund and Stable Value Fund to rebalance to your asset allocation between the new Solo 401k plan and old employer 401k plan.
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retiredjg
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Re: Rollover Former Employer 401k into Individual 401k

Post by retiredjg »

The bond index is not too bad either, considering today's high interest rates.

The point...the plan is good even if not the best we see. I'd leave the money where it is and roll it over later (to the solo 401k) if you decide to. Leaving it alone is a good choice too.
Topic Author
appleseed88
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Re: Rollover Former Employer 401k into Individual 401k

Post by appleseed88 »

Thank you for the advice. I will leave the old 401k for now, but also reanalyze my current investments and fees and report back (probably in a new thread) to discuss what selections I should make.

Regarding Vanguard's solo 401k option, I understand (at least from Google searches) that their i401k does not allow for mega backdoor roths. Does anyone know if you use Vanguard's i401k, can you still do regular backdoor Roth with my personal IRAs on Vanguard?
nolesrule
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Re: Rollover Former Employer 401k into Individual 401k

Post by nolesrule »

appleseed88 wrote: Wed Nov 23, 2022 10:18 am Regarding Vanguard's solo 401k option, I understand (at least from Google searches) that their i401k does not allow for mega backdoor roths. Does anyone know if you use Vanguard's i401k, can you still do regular backdoor Roth with my personal IRAs on Vanguard?
Yes. Because 401ks have nothing to do with the backdoor Roth process in IRAs. "backdoor" and "mega backdoor" despite their similar nicknames are 2 entirely different things. One is an IRA process and one is a 401k process.
lakpr
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Re: Rollover Former Employer 401k into Individual 401k

Post by lakpr »

appleseed88 wrote: Wed Nov 23, 2022 10:18 am Regarding Vanguard's solo 401k option, I understand (at least from Google searches) that their i401k does not allow for mega backdoor roths. Does anyone know if you use Vanguard's i401k, can you still do regular backdoor Roth with my personal IRAs on Vanguard?
At one time E*Trade used to offer customization on their Individual 401(k) plans to allow Mega Backdoor Roth (making after-tax contributions to the i-401k plan, and converting them in-plan to Roth). However, starting last year, they discontinued it, as I understand it.

I do not believe there are ANY companies that allow MBDR in Individual 401(k) plans any more.

Your second question is already answered, YES, you can continue to do regular backdoor Roth.
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Duckie
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Re: Rollover Former Employer 401k into Individual 401k

Post by Duckie »

lakpr wrote: Wed Nov 23, 2022 10:39 am I do not believe there are ANY companies that allow MBDR in Individual 401(k) plans any more.
You cannot use the mega backdoor Roth at any brokerage that uses a prototype solo 401k. You can, however, use that option at a non-prototype solo 401k. For example, My Solo 401k Financial offers pre-tax, Roth, and after-tax (aka mega backdoor Roth) employee contributions. But you have to pay for it.
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retiredjg
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Re: Rollover Former Employer 401k into Individual 401k

Post by retiredjg »

Duckie wrote: Wed Nov 23, 2022 6:11 pm
lakpr wrote: Wed Nov 23, 2022 10:39 am I do not believe there are ANY companies that allow MBDR in Individual 401(k) plans any more.
You cannot use the mega backdoor Roth at any brokerage that uses a prototype solo 401k. You can, however, use that option at a non-prototype solo 401k. For example, My Solo 401k Financial offers pre-tax, Roth, and after-tax (aka mega backdoor Roth) employee contributions. But you have to pay for it.
And you really need to know what you are doing or hire a TPA (third party administrator) to do it for you.

The people at mysolo (and similar document providers) are NOT plan administrators...something many people do not understand.
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Re: Rollover Former Employer 401k into Individual 401k

Post by placeholder »

appleseed88 wrote: Tue Nov 22, 2022 6:25 pm Is it possible to rollover the old employer Roth 401k dollars into the solo 401k, or can I only rollover old employer 401k Roth money into a Roth IRA?
What's wrong with rolling it into the roth ira?
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