By Dr. Jim Dahle, WCI FounderI am continually surprised by the amount of panic in white coat investors who see news announcements that might affect their financial plans. Please remember that there is almost NOTHING that needs to be done RIGHT NOW in any sort of reasonable, long-term financial plan as a result of something you read in the news. You don't need to email me immediately wondering how this might change your financial plan. You don't have to know all the details tonight.
As I tell our content director, we don't need to run a post immediately about these sorts of announcements. Sure, it might help our search engine optimization (SEO) a little bit and get a little traffic, but the truth is that we're not going to compete with CNN, the BBC, MSNBC, or Fox News when it comes to breaking news. People come to WCI because they want an in-depth, opinionated discussion of what to do. It takes time to get details and to form opinions, so please have a little patience with us.
- You don't need to do anything STAT about your PSLF plan just because WCI runs a post called “PSLF Canceled!” that you didn't realize was an April Fools' Joke for an hour or two.
- You don't need to do anything STAT because the FTC voted to pass a rule banning most non-compete agreements.
- You don't need to do anything STAT because Vanguard sold off its small business retirement plan division to Ascensus.
Settle down; take a deep breath. If something is obviously going to affect a lot of WCIers, you can be assured we'll be talking about it on the blog, in the newsletters, and on the podcast. But it probably won't be on the day the news breaks. You're going to have time to adjust your written financial plan in an intelligent way.
The History of the Vanguard Individual 401(k)
I used to have a Vanguard individual 401(k). Many WCI staff members and their spouses still have a Vanguard individual 401(k). It's never been perfect. The people who picked up the phone at Vanguard (eventually) gave the wrong answers to WCIers all the time. A few years ago, you couldn't buy the cheaper admiral shares of the mutual funds; you had to pay a higher expense ratio for the investor shares. For many years, you couldn't roll an IRA—even a SEP-IRA—into the plan.
Thankfully, both those things eventually went away, although I'm not sure the customer service ever really got any better. But it was good enough that Vanguard became my top recommendation for an inexpensive, “cookie-cutter,” “off-the-shelf” individual/solo 401(k). But it wasn't perfect. You didn't have to spend much more to get a customized individual 401(k) that would allow you to make Mega Backdoor Roth contributions and invest in private investments. But it was basically free and provided by a company that, despite its well-known customer service and IT issues, you felt you could trust.
More information here:
Who Is Ascensus?
Ascensus isn't some fly-by-night company. It's actually the largest retirement account company in the country, and it's already been working with Vanguard for years. It runs the Vanguard 529 (aka the Nevada 529) and many other great 529s across the country. It's not a household name like Vanguard or Fidelity, but it's not some sort of weird Ponzi scheme that you need to worry is going to steal your money. Ascensus has a lot of experience running retirement plans, and frankly, it's probably better at it than Vanguard is. I suspect anyone who just sticks with what they have is going to notice timelier, more accurate customer service than they were getting from the Vanguard Small Business Plan folks.
What's the Deal with the Sale?
Vanguard periodically changes its business models, focusing its effort and resources on what it does well, what it feels its owners (us) need most, and (frankly) what brings in the most revenue. That's why you saw the push toward brokerage accounts and away from its old mutual fund accounts. That's why you see it pushing its advisory services. And that's why you see it getting out of the small business retirement accounts business. Vanguard doesn't do it well. Few of its clients need the service, and it's probably a money loser. I just can't see where it's making any money from its plans. It charges no fees and lets you have the same super low-cost investments you can get in a Roth IRA or a taxable account. It was like Vanguard was running a charity. The company is supposed to operate at cost, but this division clearly wasn't.
The sale will close in the third quarter of 2024. (Again, you don't have to do anything immediately about any of this. You probably don't even have to do anything about it in 2024.) After that point, all Vanguard solo 401(k) owners will no longer have a Vanguard solo 401(k); they will have an Ascensus solo 401(k). Those solo 401(k)s are still going to have a lineup of Vanguard funds in them, so your investments are unlikely to change at all. However, you will likely be using a different website to make your contributions, calling a different number to get help, and probably paying more in fees (although I suppose those fees could be reduced or waived temporarily). I'm sure those who own Vanguard solo 401(k)s will be getting lots of emails and letters about this in the coming months describing the changes they should expect.
Note that this change doesn't affect single-member SEP-IRA owners. You can keep that SEP-IRA at Vanguard, no problem. It only affects SEP-IRAs that are used by multiple people at a small business.
Some advisors are telling their clients they'll need to opt-out by July 12 or the transition to Ascensus will happen automatically on July 19.
More information here:
Vanguard: Growing Pains or Abandonment of Its Mission?
Financial Products That Are Even Better Than Vanguard’s
What Should I Do About Ascensus Buying Vanguard Small Business Division?
Again, you don't have to do anything right now. However, at some point later this year, you will likely want to consider your options:
- Just let your Vanguard individual 401(k) become an Ascensus individual 401(k) and keep moving forward. This is the best option for the inertia crowd, and it will likely be what the majority will do. It will likely involve the least amount of hassle.
- Roll your Vanguard individual 401(k) into your employer 401(k) or 403(b). This will be an option for some. For the WCI employees who used to be WCI independent contractors and still have an old Vanguard individual 401(k) hanging around, this is what they're going to do. They'll get better asset protection in some states, more investment options, and better service, and they will still have access to those same low-cost Vanguard index funds they had before.
- Roll your Vanguard individual 401(k) into an IRA. This will be an option for some as well, especially those who are nearly done working or who have no interest in doing Backdoor Roth IRAs. Remember that tax-deferred IRA balances cause pro-ration of the conversion step of the Backdoor Roth IRA process.
- Switch your Vanguard cookie-cutter individual 401(k) to a Fidelity or Schwab cookie-cutter individual 401(k).
- Switch your Vanguard individual 401(k) to a customized solo 401(k) plan.
- Cash out. It'd be a terrible idea for most, but I guess if you're retiring this year and need to pull the money out of a tax-deferred account anyway, this could be a simplifying move.
My guess for what people will do?
- #1 60% (inertia is powerful)
- #2 3%
- #3 2%
- #4 20%
- #5 15%
- #6 < 1%
What Is the Ascensus Individual 401(k) Product Likely to Look Like?
While it's possible it could change or even be different for those who come from Vanguard, I think your best bet on what your new Ascensus individual 401(k) is going to look like is what it currently looks like. Three individual 401(k)s are available at Ascensus right now.
The first option is what they call its CoPilot account. This gives you a 3(38) investment fiduciary that will help share the liability with you. Frankly, I don't see a lot of liability in a solo 401(k) like with an ERISA 401(k). But one of the most knowledgeable posters on this subject on the WCI forum, spiritrider, thinks very few people are actually capable of running their own solo 401(k) because it's mostly the same thing as an ERISA 401(k) as far as compliance goes. At any rate, this one will cost you $100 to start, $365 ($413 with a spouse) per year PLUS 0.32% of AUM. That's not very attractive to me at all because I know I can go to Fidelity or Schwab and pay nothing OR I can go to a customized provider and pay something like $500 to set up and $150 a year and get an even better solo 401(k). I guess what you're getting for your extra 0.25% is someone to help you choose funds for your 401(k). Every time I realize people are willing to pay that much for that service, I wonder if I'm in the wrong business. But such is life.
The second option “Daily Value,” its cheapest, will be similar to the prior Vanguard solo 401(k), but it will come with a $125 set-up fee, a $425 ($575 with a spouse) annual fee, AND a 0.07% AUM fee. While that's obviously cheaper than the CoPilot plan, at least for a large 401(k), it's still more than free and doesn't give you the same options you can get with a truly customized plan. Plus, it costs more than a truly customized plan.
The third option is the most expensive once you add in the fees you pay an advisor, and it probably isn't going to be attractive to most DIY investors. If you've already got a financial advisor managing your solo 401(k), why are you reading this article? Part of the reason you're paying that person is so you can spend your time doing something else.
All three plans allow for rollovers and one 401(k) loan per year. They also all offer “IRS Form 5500 EZ.” I think that means Ascensus is going to file it for you, which is something Vanguard did not do, so that's nice. I think it also offers Roth contributions for all the plans.
I found another Ascensus 401(k) online, called the “Individual 401(k) Featuring Vanguard Investments.” This is also the plan you are sent if you try to open a new individual 401(k) at Vanguard today. I'm not sure how it's related to the other three 401(k)s, but I suspect it's a variation on the “Daily Value” plan. Maybe this is where Vanguard folks are being transitioned. It notes a fee of $20 per person and $20 per fund in the plan per year. I'm not sure if those fees are in addition to the above fees or in place of them, but either way, it's not free like it was at Vanguard (at least once you had $50,000 in the account). That paperwork also says this:
That's no different than what Vanguard used to do for you. I'm not sure if that's just how this plan works or if it's how all of the Ascensus plans work. It also says this:
That kind of stinks.
More information here:
Comparing 14 Types of Retirement Accounts
The Bottom Line
If you're willing to make the effort to move your individual 401(k) now that Vanguard is forcing you to Ascensus, you've got two decent options. The first is to move your 401(k) to another free cookie-cutter 401(k). Schwab is probably best since it recently changed to allow Roth contributions. E-Trade and Fidelity are other options. But I've heard lots of complaints about E-Trade and doubt it's better after merging with Morgan Stanley, and Fidelity, for some dumb reason, still doesn't allow Roth contributions. Like Vanguard, none of them allows 401(k) loans.
The better option is to just get a customized individual 401(k) from somebody off of our recommended list. If you're going to pay money (and it's really not all that much), you might as well get a 401(k) with all the best features available such as:
- Roth contributions
- Mega Backdoor Roth capability
- 401(k) loans
- Self-directed investment availability
- Somebody else to file your 5500-EZ
If you can get all that for a similar or cheaper price than Ascensus and you don't mind dealing with the hassle of changing, why wouldn't you?
What do you think? Have you worked with Ascensus before? If you have a Vanguard solo 401(k), what are you going to do with it this year?
This isn’t the first time Vanguard has done this. I had a solo Vanguard 401K long ago- 1997 or so opening- which they default turned into an IRA when they opted out. Not having WCI in existence? Or certainly not available at current accessibility and volume of content whichever year later this occured and comprehending keeping it as a 401K elsewhere would involve higher fees and at minimum an initial hassle I accepted the IRA rollover. Backdoor ROTH wasn’t on anyone’s radar IIRC, and when years later WCI mentioned 401K set up at Vanguard I feared this outcome would be repeated and didn’t bother.
As far as the fees go, I have not received anything resembling the table of options you have above. The only fees we’ve been informed of are the $20 per participant and $20 per holding. I’m going to stay put, see how the whole plan looks once converted, and make my decision from there. As you implied, there is no fire drill here.
The only question I did have is if my plan was being terminated or transferred. If terminated, we would all be on the hook for filing the terminated plan on form 5500EZ assuming we had a balance of 250K in the plan year. I don’t believe this counts as a plan termination but as I said, I’m going to see how things roll with this.
I would say transferred. If you’re on plan 001, I think you’ll still be on plan 001. Just a different custodian. But I could be wrong. Remember the big nasty penalty for the 5500-EZ is for not filing it at all, not missing a checkbox.
If a plan is terminated whatever the balance even under 250k.he 5500ez has to be filed for final return. The big question is is it a termination if you are moving from vanguard to another i 401k elsewhere. i have found answers to moving funds to an IRA or cashed out but not to rolling into a new 401k. Also I did read that the number for the plan needs to not be 001 if it has been used at one company and you are moving to another. Please let me know where it says you can keep using 001 because everything I have read say another three digit number has to be used
I agree that the fees are $20 per year then $20 per fund. For me $100/year which is not much but obviously does add up over time especially as I am used to it being free.
I am planning on switching but so far it has been a headache.
I went with E*Trade as it’s got a Roth option as well as a loan option (if you so desire).
However, the paperwork to open the two accounts is a lot and requires multiple calls to get everything resolved.
Now i actually have to transfer the money over which neither Vanguard nor E*Trade seem all sure of how to do.
It appears like I can transfer the shares in kind but have to fill out a bunch more paperwork, plus once everything is finally over go through the hassle of filling out another 5500 to close the Vanguard plan.
Bottom line is it has been a lot of work and for the $100/year might have been worth leaving it.
Thanks, this is helpful
Do you know if it is $20 per fund you hold in the account? Or per fund options offered in your plan?
I believe fund held.
For etrade did they tell you if they allow in plan pretax to roth 401k conversions in partial amounts not full. Schwab does not allow in plan conversions. This would seem like a good reason to choose Etrade over Schwab if you wanted to be able to do in plan conversions and they allowed you to do it incrementally . I hope someone has first hand experience with actually completing the process with etrade
Do you have an opininon on the SIMPLE IRA transitioning? I’m finding that if we don’t want to move to Ascensus we do not have many options unless we start a safe harbor 401k mid-year, but I havent’ found one with a nonelective contribution amount up to 3% option. According to the IRS, you can not terminate or amend a SIMPLE IRA during the plan year because it’s a commitment the employer is making to it’s employees, so then how can Vanguard take it upon themselves to amend an change custodians before the plan year ends?
Agree cannot terminate nor change the SIMPLE plan features / options midyear. However I do get the feeling you can change the plan custodian ‘by amendment’. I am currently questioning / confirming with Schwab on the possibility.
Per Secure Act 2.0, starting in 2024 employers are allowed to terminate a SIMPLE Plan mid year and replace with a Safe Harbor 401k Plan.
And Vanguard just announced a $100 fee for closing or transferring your account (effective 1 July). Don’t procrastinate too long!
https://www.msn.com/en-us/money/savingandinvesting/vanguard-is-boosting-fees-to-urge-holdout-customers-to-do-their-own-trades-online/ar-BB1lTcTg
We’ve had e-trade solo401k since 2018 and haven’t had serious issues (as far as a basic 401k). What have the most common complaints been?
Glad you’ve had a good experience. Complaints I’ve heard include customer service issues and IT issues (mostly having to do a bunch of stuff on paper that they don’t think should need to be done on paper.)
Via email:
Thank you for this article, and for everything you do. I don’t wear a white coat, but I sure do appreciate everyone who does!
FYI, in case helpful I’m attaching a redacted PDF scanned from the letter I received from Vanguard last month regarding the impending move of my Vanguard Individual 401(k) to Ascensus. File name is “20240416.Vanguard.i401k.Letter.Describing.Impending.Move.to.Ascensus.Redacted.Name.and.Address.pdf”. It is redacted only in the sense that I whited out my name and address from the first page.
Your article is correct. There’s no need to freak out about this change. In fact the fees from Ascensus will be rather modest, as you can see on the top left corner of the 3rd page of the PDF — less than the fees you described for Ascensus’ published i-401(k) offerings.
Personally I’d rather have the annual fee be zero, however I would also like a website that doesn’t feel like it’s straight out of the 1980’s (before the web even existed!). Therefore, the modest fees from the Ascensus offering may well be worth it.
Thanks, and best wishes,
And here is a link to the letter sent to this WCIer: https://www.whitecoatinvestor.com/wp-content/uploads/2024/05/Ascensus-letter.pdf
Concerning the costs, Jim. By the way, I have not been provided anything like the alternatives table you have shown above. So far, the only costs communicated are the $20 holding charge and the $20 participation fee. Before making a call, I will wait until the plan is converted to see how it appears.
I too have been through Vanguard getting out of the i401(k) once before. I recall it being around 2008 or so. As I recall, the automatic option was to move to TD Ameritrade. I did not like their website or customer service and I don’t think I was able to sync with Quicken. Two or three years later, Vanguard changed their minds about i401(k)’s , and I moved back with significant effort. I spent perhaps 20 hours on the phone with Vanguard over several years trying to correct plan issues created by having both old (they never deleted it after stopping to support it) and new i401(k) accounts.
I am disappointed with Vanguard for being so wishy-washy on i401(k) accounts. I am also disappointed in the decline in quality of customer service over the 26 years I’ve been invested with them. It was excellent over the first 15 years with knowledgable people that seemed to care about the quality of the work and were proud to work for the company. They even provided an hour or two or one-on-one investment advice when the account value was > $500,000 or 1 million. It was very helpful when I was less knowledgable.
Although I used to have significant self-employment income from consulting work and lecturing for Pharma, I really don’t have any significant self-employment income now.
Last year, the i401(k)’s main purpose was to be a place to move money to avoid the pro-rata rule. I moved all the money in my traditional IRAs, about 1/3 of all my holdings at Vanguard, to the i401(k) to allow for Backdoor Roth contributions.
I have been doing Backdoor Roth contributions for my wife for about years. I was misinformed years ago by my accountant, however, that I could not do a Backdoor Roth for me due to the pro-rata rule. It was here on WCI that I learned that the IRS does not look at i401(k) holdings for the pro-rata rule.
The letter I got says $20 per participant and $20 per mutual fund yearly. That would be $100 yearly. That’s the pre-tax payment for seeing a single patient.
I’d never pay the .07% custodial fee you mentioned for non-Vanguard customers at Ascensus. That would be a very large amount.
The big question is, will Ascensus start charging higher account fees in the future? If they charge everyone else 0.07% of their account balance, they probably will want to do the same for Vanguard customers as soon as their agreement with Vanguard expires.
I almost moved my i401(k) to Fidelity last fall. I even filled out and sent in the application, but never activated it. I figured out I could just move my traditional IRAs to a Vanguard 401(k) to avoid the pro-rata rule.
I wonder if Ascensus supports syncing of fund information to Quicken?
I started a Fidelity HSA last year when I had to changeover to a different health plan. Fidelity supports Quicken. But, I’m am not a fan of Fidelity’s website so far with my HSA.
Ascensus may be my best choice for now as there’s no effort and only $100 per year for fees, then changeover to Fidelity if Ascensus ever raises their fees.
Now that I am with Ascensus, I have determined by phone call with them (nowhere on their website) that they do not connect with Quicken for those that transferred from Vanguard. The way he said it “not with that account” makes me think they offer it for others. Very unhappy this was not disclosed before the transition, and before hand they had no information for me nor did Vanguard. I will see how things go, and if unhappy with fees, I will go to Fidelity. I had thought strongly about doing so earlier, but ruptured my Achilles 3 weeks before the transition right before I was planning to do the paperwork with Fidelity.
Here are my concerns:
1. I found online contributions to my Vanguard solo 401k to be a straight forward affair. It was easy, with transfers directly from my business account. I could make 12 monthly contributions a year, or 1 lump sum. I could make 2 contributions one month, and none the next. It was VERY flexible. I am concerned how easy / flexible this will be with Ascensus. Do they offer online contributions in a similar fashion? From my research thus far, Fidelity solo 401k only allows contributions by mailed check. YIKES. Schwab (as I understand it) allows contributions via check or other Schwab brokerage account. Also YIKES.
2. The existing solo 401k options at Ascensus fall into 3 categories. None fit nicely into what Vanguard has been. Although the fees communicated were the annual $20 per participant and $20 per fund, I don’t see these low fees persisting, as they do not seem to fit into any of the existing Ascensus solo 401k packages. In other words, I think fees are likely to increase in the future — basically as soon as the plan allows fees to change. Maybe e-trade is the best option?
Here’s an article that compares the options out there for those considering option #4 above: https://www.annuity.org/retirement/401k/best-solo-401k-providers/
The article needs to be updated as Schwab does now offer a Roth 401k and vanguard is no longer offering a 401k of any kind
Which article?
Should the 2023 5500 Ez form have the final return checked off for the vanguard plan or should that be done in 2024. Im planning on opening a 401k at Schwab and having the effective date be 01/01/2024 and contributing my 2024 contribution to the new Schwab 401k
or
Is it that you do not have to terminate anything as you are continuing with a 401k plan albeit at a new firm was vanguard now schwab and you can just continue filling the 5500 ez without highlighting that you are at a new brokerage firm with their plan documents which may or may not be the same. Hope someone has the answer to this and can include where they got the answer from so i can verify the accuracy.
If you had money in the Vanguard 401(k) during 2024, then it should be 2024 even if you have a new plan for 2024. In fact, you might want to rethink your decision to use 1/1/24 instead of 1/1/25. Might make things easier.
I guess it comes down whether it’s a new plan or the same plan. If it’s the same plan, you don’t need to check the box at all. Yet another great reason to go to a customized plan where you can get help with questions like this.
Upon further digging it appears the 401k plan at vanguard is being transferred to another institution such as fidelity/schwab/etrade so the plan number does not have to change and the plan is amended when filling out the forms at the new institution and not set up as a new plan. The only thing that is unknown and asked for on the form is what is the effective date. Can someone who has done the transfer state what they used? the deadline given by vanguard of july 12 on the vanguard letter or further in the future?
Hoping someone smarter with this stuff than me can confirm or correct my understanding based on what we’ve been told so far ($20 annual fee/participant, $20 per fund for individual 401k):
My wife is self employed so we opened the individual 401k for her. Currently, about half of it is in VFFVX and the other half is VFIAX (I cannot recall if I split it up intentionally or not). So, if we do nothing and let it switch to Ascensus, we’re looking at $60 in annual fees, correct? Is there a reason I shouldn’t or can’t quickly switch everything to either VFFVX or VFIAX before the switch and only pay $40 annually? Thanks!
You’ll probably need to call Ascensus to get an accurate answer to that question. Please share the answer here in case anyone else has the same question.
Why would you change your entire investment allocation over $20 in annual fees?
@Jofi, I don’t think I intentionally allocated the contributions differently in the first place. I follow WCI enough to know I needed to open the solo 401k for my wife but not enough to know the difference between VFFVX and VFIAX.
(For the record, I haven’t done anything yet. So far, the transition to Ascensus has seemed smooth for us. I plan to make my wife’s 2024 solo 401k contribution in the next few months.)
Question about roll overs.
So my vanguard i401k just transferred to Ascensus (inertia is powerful)
I am thinking of opening up a fidelity i401k and rolling it over to that. My understanding from Ascensus is that it wont be an “in kind” transfer of assets. Si they will liquidate all the stocks and send fidelity a check.
Now when i re-invest with the new fidelity account I will be rebuying the same stocks but at a much high price since the stock market has gone up over the two years since I opened the original i401k with Vanguard. Am I correct about this point? Is there something I am missing? Does this not matter much? I am still early in my investing years (38 years old) and luckily the amount is not huge (67k) but want to make sure I understand correctly.
If the market doesn’t move while the money is in transit, you’ll sell high and buy high and it’s all the same. There are no tax consequences anyway since it is all happening in a tax protected account.
If you’re really worried about the market going up while the money is in transit (obviously dropping would be a good thing), you could use another account if you have one to swap cash or bonds for stocks for a few weeks or even buy an option to protect you from that happening. But most just go for it and accept whatever happens in the markets.
Not sure if anyone will see this comment on an older article, but our experience with Ascensus so far has been frustrating. First of all, I much preferred Vanguard’s website. More importantly, last week we made our employee contribution to my wife’s individual 401k. On Ascensus’s website, it was marked as complete, but the contribution was not debited from our bank account, and last night I received an email from Ascensus saying there was an ACH rejection. I double checked the bank account information, and it was correct. I called Ascensus, and the first rep was unhelpful; said it had been processed, and I should just wait; and she refused to put me through to speak with anyone else. She ended up hanging up on me. I called a second time, and this time the rep was actually helpful. Essentially, it seems that Ascensus screwed it up because it was coming from a savings account (apparently they prefer checking accounts). The rep said it should have gone through, but we switched the same contribution to a come from a checking account, and hopefully it will actually complete this time.
Very displeased with Ascensus. The website sucks. They marked a contribution as complete when it clearly wasn’t. 50% of the customer service reps I’ve interacted with have been awful. Vanguard was better.
Join the club. Turns out lots of people who took the “let’s see how Ascensus does with this” are regretting their decision. You can still transfer to a new provider and the year end is a great time to make a clean break in my opinion. Better hurry though. It takes weeks to set these up usually.
People used to complain about Vanguard. Now they know it could have been even worse!
The contribution appears to have been debited from our checking account today, so looks like we are good for this year’s contribution, but I probably should circle back to this in a few months and switch to a better company. Looks like you have some recommendations listed above. Thanks!