Could I open two Solo 401 [Solo 401(k)s]

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Bigzz
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Joined: Tue May 01, 2018 1:21 pm

Could I open two Solo 401 [Solo 401(k)s]

Post by Bigzz » Sat Sep 15, 2018 3:38 pm

Have been lurking for while. This site have changed my life. Wish I found it 7 years ago. Thanks to all the incredible people who provide so much excellent information

My question is could I open two Solo 401ks at different institution. I have 403b through fidelity from previous employer. All my income is 1099. I want to open i401 at fidelity so that I can roll over the old 403b, then transfer to an existing i40k i have at vanguard. I have already made contribution to the vanguard i40k this year although not the entire max 55k yet. Could I do that. Thanks

niceguy7376
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Location: Metro ATL

Re: Could I open two Solo 401 [Solo 401(k)s]

Post by niceguy7376 » Sat Sep 15, 2018 4:15 pm

I assume you can only have one active plan. You can close the VG, open Fido and do the rollover from VG to Fido and then do the rollover of 403b.

Question then is if VG will then allow the transfer from Fido

Also, do you earn more than 180k to contribute the max 55k into solo 401k?

retiredjg
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by retiredjg » Sat Sep 15, 2018 4:58 pm

It has been reported that Vanguard solo 401k plans do not accept a rollover from other plans. I'm sure that includes IRA but others have said that includes other 401k plans as well.

You need to ask them that.

Spirit Rider
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by Spirit Rider » Sat Sep 15, 2018 5:15 pm

@niceguy7376 is correct. An employer may only have one 401k plan active at the same time covering the same employees. This is still true for a one-participant 401k

You would need to do the following:
  1. Complete the Fidelity Self-employed 401k adoption agreement by selecting the option to amend a current plan (Vanguard Individual 401k) and open the Fidelity Self-employed 401k account. The 401k plan "number" will be the same.
  2. Inform Vanguard that you have amended the 401k plan to Fidelity and request a rollover of all funds. You may be able to have Fidelity do it from their end.
  3. Rollover the 403b to the Fildelity Self-employed 401k.
  4. Make the remainder of this year's contributions (if any) to the Fidelity 401k plan.
  5. If this rollover causes the one-participant 401k balance to be > $250K on this or any future 12/31 file Form 5500-EZ.
After the first of the year you could use steps 1 and 2 in reverse order, but you should reconsider that:
  1. You already know that Vanguard does not allow incoming rollovers.
  2. Vanguard does not allow the purchase of Admiral Shares in their Individual 401k. You will pay 0.10%+ higher expense ratios.
  3. Vanguard does not allow employee eligibility restrictions. You will have to terminate or amend your plan if you want to employ individuals < 21 and/or part-time < 1000 hours/year including your children. By the way, make sure you elect these options on your Fidelity Self-employed 401k adoption agreement.

Bigzz
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Joined: Tue May 01, 2018 1:21 pm

Re: Could I open two Solo 401 [Solo 401(k)s]

Post by Bigzz » Sat Sep 15, 2018 5:54 pm

Thanks I think this is what I will do and leave i40k at Fidelity. I have not yet funded the vanguard account. Could I simply close it down? Then open a new one at Fidelity? Thanks
Spirit Rider wrote:
Sat Sep 15, 2018 5:15 pm
@niceguy7376 is correct. An employer may only have one 401k plan active at the same time covering the same employees. This is still true for a one-participant 401k

You would need to do the following:
  1. Complete the Fidelity Self-employed 401k adoption agreement by selecting the option to amend a current plan (Vanguard Individual 401k) and open the Fidelity Self-employed 401k account. The 401k plan "number" will be the same.
  2. Inform Vanguard that you have amended the 401k plan to Fidelity and request a rollover of all funds. You may be able to have Fidelity do it from their end.
  3. Rollover the 403b to the Fildelity Self-employed 401k.
  4. Make the remainder of this year's contributions (if any) to the Fidelity 401k plan.
  5. If this rollover causes the one-participant 401k balance to be > $250K on this or any future 12/31 file Form 5500-EZ.
After the first of the year you could use steps 1 and 2 in reverse order, but you should reconsider that:
  1. You already know that Vanguard does not allow incoming rollovers.
  2. Vanguard does not allow the purchase of Admiral Shares in their Individual 401k. You will pay 0.10%+ higher expense ratios.
  3. Vanguard does not allow employee eligibility restrictions. You will have to terminate or amend your plan if you want to employ individuals < 21 and/or part-time < 1000 hours/year including your children. By the way, make sure you elect these options on your Fidelity Self-employed 401k adoption agreement.

Spirit Rider
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by Spirit Rider » Sat Sep 15, 2018 6:19 pm

Bigzz wrote:
Sat Sep 15, 2018 5:54 pm
Thanks I think this is what I will do and leave i40k at Fidelity. I have not yet funded the vanguard account. Could I simply close it down? Then open a new one at Fidelity? Thanks
A 401k plan exists as soon as it is adopted. If you terminated the Vanguard Individual 401k plan, there is what is called the successor plan rule. You would be unable to adopt another plan for one year.

However, it really isn't much more difficult than adopting a new plan. Just amend the plan to Fidelity using their adoption agreement, selecting the amendment option and because you haven't funded it yet, setting the effective date as 1/1/18. Then simply notify Vanguard that you have amended the plan to Fidelity. It will be as if you originally adopted the plan at Fidelity. You can make the full year's contribution's without problem.

One thing you need to understand, a 401k plan has a life beyond that of a single plan document, administrator, custodian, etc... The 401k plan is first and foremost your plan. You never want to terminate it if at all possible.

BusterMcTaco
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by BusterMcTaco » Sun Sep 16, 2018 1:26 am

Spirit Rider, if one has a 1000 hours/year requirement and non-spouse employees with less than 1000 hours/year, is the plan still ok? The only problem with having employees is the non discrimination testing (right?) but that won't apply if they are excluded due to their part time nature?

Spirit Rider
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by Spirit Rider » Sun Sep 16, 2018 7:39 am

Correct.

A one-participant 401k plan cannot have eligible non-spouse employees. Any employee not meeting the eligibility requirements is excluded from the plan.

Note: Employee eligibilty restrictions apply to all employees including the owner-employee(s) and spouse-employee(s). You need to adopt or amend the one-participant 401k exempting current employees, before hiring the employees you want to exclude. If you want your spouse to be exempt. They must be an owner or employee before adopting/amending the plan with employee eligibility restrictions.

wudged
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by wudged » Sun Sep 16, 2018 8:10 am

Has Vanguard changed their policy on incoming rollovers? A couple years back I had a balance in a traditional IRA (due to rolling over a SIMPLE IRA) that I wanted to clear. Vanguard would not accept an incoming rollover from it into an i401k. So I instead opened an account at Fidelity, who did allow the rollover. I then rolled over the entire thing to a Vanguard i401k.

nolesrule
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by nolesrule » Sun Sep 16, 2018 8:47 am

wudged wrote:
Sun Sep 16, 2018 8:10 am
Has Vanguard changed their policy on incoming rollovers? A couple years back I had a balance in a traditional IRA (due to rolling over a SIMPLE IRA) that I wanted to clear. Vanguard would not accept an incoming rollover from it into an i401k. So I instead opened an account at Fidelity, who did allow the rollover. I then rolled over the entire thing to a Vanguard i401k.
No, the Vanguard individual 401k still does not allow incoming rollovers.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Could I open two Solo 401 [Solo 401(k)s]

Post by retiredjg » Sun Sep 16, 2018 9:19 am

nolesrule wrote:
Sun Sep 16, 2018 8:47 am
wudged wrote:
Sun Sep 16, 2018 8:10 am
Has Vanguard changed their policy on incoming rollovers? A couple years back I had a balance in a traditional IRA (due to rolling over a SIMPLE IRA) that I wanted to clear. Vanguard would not accept an incoming rollover from it into an i401k. So I instead opened an account at Fidelity, who did allow the rollover. I then rolled over the entire thing to a Vanguard i401k.
No, the Vanguard individual 401k still does not allow incoming rollovers.
This has been a question in my mind for awhile.

You say "does not allow income rollovers", but do you mean ANY rollover or rollover from an IRA? Is this from your personal experience? Did you actually try to roll a 401k (not an IRA) in and they would not allow it?

It is incomprehensible to me they would not accept a rollover from another 401k and I do recall people having said they did that in the past, just as wudged states. Then people said "no, can't do that either"....

Either the rules changed or reports from one side or the other are incorrect.

Or maybe the answer is in the wording that Spirit Rider has used. Maybe they don't accept a "rollover" but they would do an adoption agreement to amend a current plan at some other provider and accept that money.... which might not be called a "rollover".

Comments? Spirit Rider?

Spirit Rider
Posts: 8883
Joined: Fri Mar 02, 2007 2:39 pm

Re: Could I open two Solo 401 [Solo 401(k)s]

Post by Spirit Rider » Sun Sep 16, 2018 10:09 am

retiredjg wrote:
Sun Sep 16, 2018 9:19 am
Or maybe the answer is in the wording that Spirit Rider has used. Maybe they don't accept a "rollover" but they would do an adoption agreement to amend a current plan at some other provider and accept that money.... which might not be called a "rollover".
Wow, who wrote that post.

I think that verbally challenged individual meant; "Vanguard may not accept a "rollover" from another plan, but maybe they will accept a "trustee -> trustee transfer", incident to amending your one-paticipant 401k plan to Vanguard's Individual 401k?"

We now know from subsequent reports that Vanguard will accept such transfers. I do not know for sure that they do not accept rollovers from qualified plans. However, that is what has been reported.

BusterMcTaco
Posts: 187
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by BusterMcTaco » Sun Sep 16, 2018 11:36 am

Spirit Rider wrote:
Sun Sep 16, 2018 7:39 am
A one-participant 401k plan cannot have eligible non-spouse employees. Any employee not meeting the eligibility requirements is excluded from the plan.

Note: Employee eligibilty restrictions apply to all employees including the owner-employee(s) and spouse-employee(s). You need to adopt or amend the one-participant 401k exempting current employees, before hiring the employees you want to exclude. If you want your spouse to be exempt. They must be an owner or employee before adopting/amending the plan with employee eligibility restrictions.
This is great. I never even considered it.

I didn't have restrictions in my plan adoption, so could amend as you suggest, exempting current employees, and requiring a year of service. E*Trade is a bit wonky in this regard--I can't require 1000/year, but I can require "a year of service". Here is the adoption agreement phrasing:
Eligibility Service Requirement. An Employee will be eligible to become a Participant in the Plan for purposes of becoming a Contributing Participant (and thus eligible to make Elective Deferrals) or receiving an allocation of any Employer Profit Sharing Contributions, as applicable, made pursuant to Section Three of the Adoption Agreement (select one).

Option 1: No eligibility service required. (this is what I have currently)
Option 2: After completing ______ consecutive Months of Eligibility Service (not more than 12) beginning on the Employee’s date of hire.
Option 3: After completing ______ Years of Eligibility Service (enter 0 or 1). (underline mine)
It then goes on to Part B which allows me to exclude employees employed as of a specified date.

In the Definitions of the plan document, it states:
YEAR OF ELIGIBILITY SERVICE
Means a 12-consecutive month period that coincides with an Eligibility Computation Period during which an Employee completes at least 1,000 Hours of Service (or such lesser number of Hours of Service specified in the Adoption Agreement)

The adoption agreement says nothing about number of hours.

Then, finally, the plan document states:
ELIGIBILITY TO PARTICIPATE
Each Employee, except an Employee who belongs to a class of Employees excluded from participation as indicated in the Adoption Agreement, will be eligible to participate in this Plan upon satisfying the age and eligibility service requirements specified in the Adoption Agreement. If no age is specified in the Adoption Agreement, there will not be an age requirement. If no option for eligibility service is selected, no eligibility service will be required.
So, it seems that 1,000/year is in fact part of the plan, if I choose the minimum of 1 year of service in the adoption agreement?

Edit to add: Are there any options that I can implement for employees that co-exist with a one-participant 401(k) plan? I don't actually want to exclude my prospective employees, and would in fact happily contribute 25% profit-sharing, but I don't think that would pass nondiscrimination testing, right? I haven't looked into the testing issue and am doing so now.

retiredjg
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by retiredjg » Sun Sep 16, 2018 11:51 am

Spirit Rider wrote:
Sun Sep 16, 2018 10:09 am
retiredjg wrote:
Sun Sep 16, 2018 9:19 am
Or maybe the answer is in the wording that Spirit Rider has used. Maybe they don't accept a "rollover" but they would do an adoption agreement to amend a current plan at some other provider and accept that money.... which might not be called a "rollover".
Wow, who wrote that post.

I think that verbally challenged individual meant; "Vanguard may not accept a "rollover" from another plan, but maybe they will accept a "trustee -> trustee transfer", incident to amending your one-paticipant 401k plan to Vanguard's Individual 401k?"

We now know from subsequent reports that Vanguard will accept such transfers. I do not know for sure that they do not accept rollovers from qualified plans. However, that is what has been reported.
I'm a little confused by your response. Are you asking who wrote my post? Am I the one who is verbally challenged?

BusterMcTaco
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by BusterMcTaco » Sun Sep 16, 2018 12:13 pm

I'm pretty sure Spirit Rider was making fun of himself* (and his own prior phrasing).

*Or herself? I hate the lack of gender neutral pronouns.

retiredjg
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by retiredjg » Sun Sep 16, 2018 12:41 pm

Oh. I guess that does make more sense. :happy

Spirit Rider
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Re: Could I open two Solo 401 [Solo 401(k)s]

Post by Spirit Rider » Sun Sep 16, 2018 2:32 pm

BusterMcTaco wrote:
Sun Sep 16, 2018 12:13 pm
I'm pretty sure Spirit Rider was making fun of himself* (and his own prior phrasing).

*Or herself? I hate the lack of gender neutral pronouns.
Yup, I was making fun of the previous gibberish.

Hint: A Spirit Rider would appear as a brave astride a white horse.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Could I open two Solo 401 [Solo 401(k)s]

Post by Spirit Rider » Sun Sep 16, 2018 9:03 pm

BusterMcTaco wrote:
Sun Sep 16, 2018 11:36 am
E*Trade is a bit wonky in this regard--I can't require 1000/year, but I can require "a year of service".
...
So, it seems that 1,000/year is in fact part of the plan, if I choose the minimum of 1 year of service in the adoption agreement?
I should have stated that the 1000 hours/year is a sub restriction under the time of service restriction. Many adoption agreements allow you to separately specify the term of service and number of hours. ETrade it appears does not.

Edit to add: Are there any options that I can implement for employees that co-exist with a one-participant 401(k) plan? I don't actually want to exclude my prospective employees, and would in fact happily contribute 25% profit-sharing, but I don't think that would pass nondiscrimination testing, right? I haven't looked into the testing issue and am doing so now.
If you have eligible employees, you can not maintain your one-participant 401k plan. You would have to amend the plan. This plan would cover those eligible employees. In order to not worry about ADP/ACP non-discrimination testing, you would want to amend to a safe harbor 401k plan or a QACA 401k plan.

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