sister's solo 401k

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sister's solo 401k

Post by jimkinny » Tue Mar 24, 2020 1:56 pm

This is a question that involves helping my sister, who has a American Century fund that she bought through a credit union.

I want her to get the money from American Century to Vanguard. I have never dealt with solo a 401k. I think it would be best to open a new solp 401 at Vanguard and fund it with new money for her 2019 contribution. Her accountant told her the amount she can contribute.

After that is done, then do a trustee to trustee transfer of the money, not the American Century fund.

Any problems with this plan?

Are the rules the same for transferring the same as for IRAs?

I will ask her to talk to Vanguard but I want to tell her what to expect. She is not at all knowledgeable about this and does not know what she owns at
American Century.


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Re: sister's solo 401k

Post by lakpr » Tue Mar 24, 2020 2:03 pm

Vanguard Solo 401k does not allow rollovers from other plans. Your plan is dead on arrival.

E*Trade has the best-in-class product in the Solo 401k space. It allows rollovers of tax-deferred assets held at other custodians, allows you to make Roth contributions or Traditional contributions as employEE, and also allows in-plan Roth conversions of previously made Traditional contributions, which can help a bit for last minute tax planning. I earnestly suggest you look at E*Trade, rather than Vanguard.

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Re: sister's solo 401k

Post by Spirit Rider » Tue Mar 24, 2020 2:24 pm

A one-participant 401k plan is still a 401k plan and is not just an account like an IRA. It is an entity unto itself, sponsored by an employer. It is the employer's plan not the provider's plan. For all practical purposes an employer can not have more than one 401k plan covering the same employees. This means that an employer can not have more than a single one-participant 401k plan.

You can not rollover from a one-participant 401k to another. Your only choice is to change providers by:
  • Using the destination provider's adoption agreement "amend" your one-participant 401k plan from the old provider to the new provider.
  • Open the necessary 401k accounts under that plan.
  • Use trustee -> trustee transfers to move the old one-participant 401k plan assets from the old custodian to the new custodian.
  • Close the one-participant 401k accounts at the old provider.
Note: Vanguard does not allow rollover contributions to their Individual 401k plan, but they will accept a plan amendment and trustee -> trustee transfers about to change one-participant 401k plan providers. However, for many other reasons, I concur with @lakpr that E-Trade is probably the best option for a mainstream low-cost one-participant 401k plan provider.

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Re: sister's solo 401k

Post by PaddyMac » Wed Mar 25, 2020 12:34 am

She can only make contributions for 2019 to an account was OPEN before 12/31/2019. If the account had been opened last year, she could make contributions up until her tax filing deadline.

Individual 401k deadlines are not as flexible as SEPs and others.

Have her talk with Vanguard though. We have two retirement plans: 01 = SEP (first open, no longer contributing) and 02 = 401k at Vanguard.

When we opened the 401k, they just said to put "02" in the Plan number.

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