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Research into solo 401k with intent for mega backdoor roth

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  • Avatar GasFIRE 
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    Status: Physician
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    Joined: 01/08/2018

    @saildawg, I commend you on the diligence and thoroughness of your Mega BD Roth plan. I began my own MBD Roth last year and this was me:

    I and tfb have been concerned that too many people have read his excellent posts on custom one-participant 401k plans for Mega Backdoor Roth . Then lacked the discipline and attention to detail necessary to administer such plans.

    Click to expand…

    As @jacoavlu points out,

    I would note that Mysolo401k and Discountsolo401k are not really TPAs. They of course provide the plan documents (those from Mysolo401k come with an IRS opinion letter blessing the plan; discountsolo401k may as well, you could ask) and assist in all aspects of setting up the plan, establishing the trust, completing account applications, etc and will assist in maintenance such as verifying your contribution calculations (if you ask) and preparing the 1099-R for the rollover, but YOU are the plan administrator. They’re not functioning in the usual capacity of a TPA. If they did they’d charge a lot more. You could still easily screw things up if you tried, and they wouldn’t stop you from doing so.

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    I ended up using a TPA and am happy I did so, but if you pay attention to the details your plan will cost less to administer.

    Regarding your Step 3 on Fidelity’s non-prototype retirement account, if you have any questions about it make sure you talk to Fidelity’s retirement department. They are only available M-F, but they are much more familiar with the rules for these types of plans. I have been given some incorrect info to questions at their general 800 number. Their fine for Money and Kiplinger-type questions, but not on this type of account.

    Anecdotally, I transferred my solo 401k account at Fidelity into their non-prototype account during this process. When I suggested having my Roth sub-account there also, I got strong push-back from the TPA. They said they had had some problems with Fidelity not wanting to make transfers between non-prototype accounts. I personally think this may be an n=1 problem, however when I asked for an alternative, they suggested TDA or ETrade so my Roth account is at TDA.

    Good luck with the process, I’m impressed with the map you’ve created.

    #208187 Reply
    Liked by saildawg
    Avatar saildawg 
    Participant
    Status: Physician
    Posts: 330
    Joined: 01/24/2016

    Anecdotally, I transferred my solo 401k account at Fidelity into their non-prototype account during this process. When I suggested having my Roth sub-account there also, I got strong push-back from the TPA. They said they had had some problems with Fidelity not wanting to make transfers between non-prototype accounts. I personally think this may be an n=1 problem, however when I asked for an alternative, they suggested TDA or ETrade so my Roth account is at TDA.

    Click to expand…

    When you say Roth sub account are you referring to your non prototype roth 401k, or a separate Roth IRA?

    I have a Roth IRA at vanguard but was going to open an additional Roth IRA at Fidelity to make the process easier.

    Also do you mind sharing which Third party administrator you selected, and the pricing structure?

     

    #208283 Reply
    Avatar GasFIRE 
    Participant
    Status: Physician
    Posts: 202
    Joined: 01/08/2018

    Anecdotally, I transferred my solo 401k account at Fidelity into their non-prototype account during this process. When I suggested having my Roth sub-account there also, I got strong push-back from the TPA. They said they had had some problems with Fidelity not wanting to make transfers between non-prototype accounts. I personally think this may be an n=1 problem, however when I asked for an alternative, they suggested TDA or ETrade so my Roth account is at TDA.

    Click to expand…

    When you say Roth sub account are you referring to your non prototype roth 401k, or a separate Roth IRA?

    I have a Roth IRA at vanguard but was going to open an additional Roth IRA at Fidelity to make the process easier.

    Also do you mind sharing which Third party administrator you selected, and the pricing structure?

     

    Click to expand…

    My Roth sub-account is a Roth 401k account at TDA. My plan uses an immediate in-plan Roth rollover (IRR) as @jacoavlu previously described. If you decide to go with the in-service withdrawal and rolling the after-tax money into a Roth IRA, confirm beforehand that the IRA will be allowed to accept the rollover funds. Fidelity does,

    https://www.fidelity.com/viewpoints/retirement/IRS-401k-rollover-guidance

    but I am not familiar with Vanguards rules.

    I will PM you with my TPA info so you can compare the pricing structure.

     

    #208540 Reply
    Liked by saildawg
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2282
    Joined: 03/01/2018

    My preference would be to have all the sub accounts (pretax, Roth, and after tax) together at one institution, for simplicity. This is certainly possible at Fidelity, Schwab, and E*TRADE. I don’t believe it’s possible at Vanguard because they only offer pooled accounts for trusts.

    There is a thread on bogleheads about someone that used I believe discount401k and a pooled account at Vanguard. Mysolo401k advised against using this setup, and I think they prefer Fidelity. I setup mine with Schwab.

    Getting the three accounts open at Schwab took some time and some back and forth but since then has been smooth. I make the after tax contribution my mail with a paper check, and the in plan Roth rollover only requires a quick phone call to make the transfer. And I keep a rollover form documenting the transaction.

    I’ll see if I can find that Vanguard thread.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #208545 Reply
    Avatar jacoavlu 
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    Status: Physician, Small Business Owner
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    Joined: 03/01/2018
    #208546 Reply
    Avatar deeppizza 
    Participant
    Status: Physician
    Posts: 40
    Joined: 09/30/2016

    This may be a simple question, but if already contribute to the limit ($19K) to my employer’s 401k (paid via W2), and I have $15k in supplemental 1099 income and want to contribute all the 1099 income to after-tax non-Roth (no profit-sharing or deduction) solo 401k, is the appropriate amount $15k, or some fraction of that?

    #208588 Reply
    Avatar jacoavlu 
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    Status: Physician, Small Business Owner
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    Splash Refinancing Bonus

    It’s a little less than $15k because contribution is limited to 100% of compensation. Would basically be 1099 income minus any expenses deducted on schedule C against 1099 income, less one half self employment ta

    tfb’s calculator linked before in this thread and in my signature can help you see how the numbers would play out for you

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #208589 Reply
    Liked by saildawg
    Avatar saildawg 
    Participant
    Status: Physician
    Posts: 330
    Joined: 01/24/2016
    I make the after tax contribution my mail with a paper check, and the in plan Roth rollover only requires a quick phone call to make the transfer. And I keep a rollover form documenting the transaction.

    Click to expand…

    Thanks jacoavlu, based on your comments I can see a good amount of benefit in using IRR and rolling over to roth 401k for simplicity sake and will plan to do that.

    I guess a separate question is the pro con of Roth 401k vs Roth IRA

    We mentioned estate protection, which may be a wash in Georgia, but 401k may be better protected than IRA depending on the state. I believe the IRA you can access contributions without penalty earlier.  And 401k will have to take RMDs.

    I think my best course of action is to use the IRR to solo 401k, and when I decide to stop earning 1099 income roll the roth 401k into a Roth IRA.

    #208617 Reply
    Liked by GasFIRE
    Avatar jacoavlu 
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    Status: Physician, Small Business Owner
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    Joined: 03/01/2018

    Yes you can get at Roth contribution money earlier than retirement but I would avoid planning to do so if you can. Roth space is finite and very valuable and once you pull that money out that space is gone forever. I would try to have a nice pile of money in regular taxable accounts for early retirement, rather than planning to early access Roth dollars.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #208661 Reply
    Liked by GasFIRE
    Avatar spiritrider 
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    Status: Small Business Owner
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    Joined: 02/01/2016

    Since Roth 401k RMDs are not required until the year you turn 70 1/2. There really is no problem keeping the designated Roth assets in the 401k plan until your 60s. Just make sure you have contributed to and/or converted/rolled over to a Roth IRA to start the five-year qualification clock.

    #208722 Reply
    Avatar saildawg 
    Participant
    Status: Physician
    Posts: 330
    Joined: 01/24/2016

    Since Roth 401k RMDs are not required until the year you turn 70 1/2. There really is no problem keeping the designated Roth assets in the 401k plan until your 60s. Just make sure you have contributed to and/or converted/rolled over to a Roth IRA to start the five-year qualification clock.

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    Great I will update my plan to utilize the IRR to shift money from post tax non roth 401k –> roth 401k, keep it there for simplicity and then at a much later time roll it into a roth 401k at least 5 years before I intend to use it.

    #208734 Reply
    Liked by GasFIRE
    Avatar saildawg 
    Participant
    Status: Physician
    Posts: 330
    Joined: 01/24/2016
    I guess a separate question is the pro con of Roth 401k vs Roth IRA

    Click to expand…

    To answer my own question TFB did a great article in IRR vs converting to Roth IRA

    https://thefinancebuff.com/mega-backdoor-roth-convert-within-plan-or-roth-ira.html

    #208738 Reply
    Avatar CFEonline 
    Participant
    Status: Physician
    Posts: 135
    Joined: 09/05/2018
    medical school scholarship sponsor
    when I asked for an alternative, they suggested TDA or ETrade

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    Has anyone personally succeeded or read about someone who has succeeded with this setup at E-trade for custom solo-401k after-tax non-roth contributions followed by in service rollover to roth? I like that they have most of the major Vanguard indexes as admiral funds in their no fee offerings. However, digging around in the past I saw a few posts about people who tried with them and ended up switching to Fidelity as they were unable to get the setup accomplished at E-trade with the custom plan documented provided by the third parties linked here.

    #209217 Reply
    Avatar saildawg 
    Participant
    Status: Physician
    Posts: 330
    Joined: 01/24/2016
    when I asked for an alternative, they suggested TDA or ETrade 

    Click to expand…

    Has anyone personally succeeded or read about someone who has succeeded with this setup at E-trade for custom solo-401k after-tax non-roth contributions followed by in service rollover to roth? I like that they have most of the major Vanguard indexes as admiral funds in their no fee offerings. However, digging around in the past I saw a few posts about people who tried with them and ended up switching to Fidelity as they were unable to get the setup accomplished at E-trade with the custom plan documented provided by the third parties linked here.

    Click to expand…

    From my research I don’t believe you can have the blessing of the IRS with the etrade option.  I am willing to pay for that comfort with either discountsolo401 or mysolo401k

    https://www.bogleheads.org/forum/viewtopic.php?t=252951

     

     

    #209245 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2282
    Joined: 03/01/2018
    Has anyone personally succeeded or read about someone who has succeeded with this setup at E-trade for custom solo-401k after-tax non-roth contributions followed by in service rollover to roth? I like that they have most of the major Vanguard indexes as admiral funds in their no fee offerings. However, digging around in the past I saw a few posts about people who tried with them and ended up switching to Fidelity as they were unable to get the setup accomplished at E-trade with the custom plan documented provided by the third parties linked here.

    Click to expand…

    Assume you mean success as in getting this set up with only a modification of Etrade’s free solo 401k offering? If so, no I’ve never heard of anyone actually getting this done.

    You could certainly use a semi custom plan document from one of the providers already mentioned, and have the trust accounts at Etrade.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #209250 Reply

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