I’m a huge fan of Solo 401Ks for self-employed physicians. You can max it out ($52K in 2014) on less income than a SEP-IRA, you can get a Roth option in it, and you can still have Backdoor Roth IRAs on the side. If you’re an S Corp, the ability to max out the Solo 401K on less income allows you to declare more of your income a dividend (and thus less as salary) saving you even more in Medicare tax. (I wouldn’t recommend trying to get your income low enough as a physician that you’re going to save any Social Security tax.) The paperwork for establishing and maintaining a Solo 401K is slightly more difficult than a SEP-IRA, but still no big deal. Solo 401Ks also sometimes offer a loan option, like other 401Ks, but which you cannot get in an IRA, SEP or otherwise.
However, the question of where to open a Solo 401K isn’t nearly as straightforward. My normal default in questions like these is to go to Vanguard (and I did). However, this decision isn’t the “no-brainer” that going to Vanguard usually is. Like the Vanguard brokerage, the Vanguard Solo 401K has some issues.
Which Brokerage is Best For Opening a Solo 401K?
Vanguard
The Vanguard Individual 401K offers the Roth 401K option and all of the Vanguard mutual funds. However, there is no brokerage option, so buying ETFs, even Vanguard ETFs, and mutual funds from other fund companies isn’t an option. You cannot even get Vanguard’s less expensive Admiral shares, just the admittedly slightly more expensive investor shares. The Vanguard Individual 401K also doesn’t accept incoming IRA rollovers, an important issue if you have a large traditional IRA you would like to rollover to a Solo 401K in order to allow Roth IRA contributions through the backdoor. There is also no loan option if that is important to you.
Fidelity
The Fidelity Self-Employed 401K Plan has a brokerage option (through which you can buy Vanguard and other ETFs) and its low-cost Spartan index funds. However, I have been told it has no Roth option, although the plan document doesn’t say that. [Update: Fidelity has confirmed to me that they do not have a Roth option for their individual 401(k).] It does, however, accept incoming rollover IRAs, so this is a great option if you need to do that in order to start doing Backdoor Roth IRAs. Fidelity also offers 401K loans [Update: A reader has assured me that Fidelity most certainly DOES NOT offer 401(k) loans.]Schwab
The Schwab Individual 401K Plan allows you to buy Schwab funds/ETFs for free and Vanguard ETFs for $8.95 per trade. They do not allow loans, but the plan document does state that a Roth option is available. To add to the confusion, the plan document states you CAN take out loans. [Update: A reader called Schwab- the Roth option is not available despite what the plan document says.] It seems to accept 401K/403B/457 rollovers, but not IRA rollovers. [Update 2/2017: I’m told by readers that Schwab now takes rollovers.]
ETrade
The Etrade Individual 401K Plan allows Roth contributions and obviously has a brokerage option with $9.99 trades for any ETF. They accept IRA rollovers and allow for loans. They also will pay you if you transfer your current Solo 401K to them, $200 for $25K-$99K, $300 for $100K-$249K, and $600 for a $250K+ plus plan.
TD Ameritrade
The TD Ameritrade Individual 401K Plan offers full brokerage services including a number of commission-free ETFs from Vanguard and Ishares. They have less information on the website than the other providers, so I am unsure as to the availability of loans, a Roth option, or whether or not they accept IRA rollovers.
| Vanguard | Fidelity | Schwab | Etrade | TDAmeritrade | |
| Index Funds | Investor Shares | Spartan and ETFs | ETFs | ETFs | ETFs (some commission free) |
| Roth option | Yes | No | No | Yes | ? |
| Loans | No | No | No ? | Yes | ? |
| IRA Rollovers | No | Yes | Yes | Yes | ? |
There are at least 13 other Solo 401K providers, but I’d recommend choosing one of these 5. Head to head, Etrade seems like the best overall option to me. Perhaps when my plan hits $25K I’ll roll it over and collect that $200.
If you are looking for more of a self directed 401(k) one option for you could be Rocket Dollar . They administer self-directed Solo 401(k)s and IRAs. Because it’s self-directed, you can buy real estate properties on your own or leverage RE crowdfunding platforms like Equity Multiple, RealtyMogul, Fundrise, Roofstock, CrowdStreet, etc.
What do you think? Where is your Solo 401K? Why did you choose that one? Comment below!
That is a great site! Thanks. I didn’t know about the retirement police. I am wondering when the wanted posters are going up. The retirement situation is worse than it sounds, and I know it sounds bad. Right before I agreed to my current locums stint, I was offered a job flying regional jets for the airlines. If the group had called even a day later I’d have been in basic indoc for a 125 pax airliner. It seems they’re short of pilots…what a cool way to go out, flying Barbie Jets up and down the coast for a few years, but alas, I took the locums job to help out.
I’m planning to open a solo 401k and fund it with a single check from completion of an online survey. Do I need to setup a PLLC or other form of corporation to get the check and deposit it to the 401k, or is it O.K. to have the check made out to me individually? I am doing this in order to be able to rollover my 401k from my W2 employer to the solo 401k when I leave the W2 employer. I understand some posting on this website take issue with funding a solo 401k with such survey income, so no need to take issue with that aspect of the transaction. I also understand that it is probably “better” “safest” and “more conservative” to setup the PLLC, I’m looking to find out if it is truly necessary to do so from a legal/IRS/compliance standpoint. No interest in having any independent contractor income in the future, I just want to do this as simply as possible to allow me to continue to do a backdoor Roth IRA. It seems like this would be a pretty common scenario, only having W2 wages and moving to another job with only W2 wages, just wanting to preserve the Backdoor Roth IRA option without having to deal with additional taxes from having traditional 401k funds rolled over into Deductible IRA account. I’ve see plenty of discussion about it, but nothing addressing necessity of setting up PLLC type structure to facilitate the transaction.
@DocABC
There’s a lot going in your post and I find it difficult to grasping the scenario and what you’re trying to achieve. Notwithstanding, a Solo 401k does not require that the sponsoring business be performed within a business entity – PLLC or otherwise. See https://www.401kcheckbook.com/checkbook-control-retirement-plans/checkbook-control-401k/
Well, it does, but the entity can be a sole proprietorship.
What he’s trying to do is get rid of a traditional IRA so he can do Backdoor Roth IRAs.
Start business
Open 401(k) for business.
Roll IRA into 401(k).
Begin doing Backdoor Roth IRAs.
Thanks for clarifying that.
What gives me pause is that it seems there’s no intention of maintaining the “business.” A 401(k) Plan requires a “trade or business” See IRC 401 & 1402. “Trade or Business” is one of those nebulous facts-and-circumstances items, defined by courts, not by the Code.
I agree. It’s nebulous but doing a single survey one time might not pass muster if anyone looks closely. But I can’t tell you how many surveys you have to do to win an audit on the subject. Is 5 a year enough? 3 every two years? 25 a year? At a certain point, it certainly qualifies. What that point is I have no idea.
Update on Etrade experience:
Once I got the accounts set up things got really smooth. I was able to accomplish all that I set out to do and more…much more.. Etrade did not offer the securities (mutual funds) I had in my former employer’s 401(k), so I asked Etrade if they could accept in-kind transfer roll overs. They had to do some work but the answer is yes. I can keep my VG admiral funds from the former employer’s 401k and roll them over directly into Etrade and I think (I haven’t checked this yet), add more to these funds over time.
Extra bonus, my wife is hired as my administrative associate, paid a salary which is then contributed 100% to her solo 401k account. I pay the full employer SS tax, but the full salary contribution brings her net taxable income to zero, and the account grows. We set this up as a Roth/traditional 401k, so we will be moving funds in the low income years to the Roth side. And then there’s the profit sharing contribution, too.
So far, after the initial rough spots and frustations, Etrade is a good place to be for us.
Glad to hear it.
Is it possible to max out solo 401k (or SEP, where the money’s currently at) and still qualify for Roth IRA? If the “employer” contribution decreases the SCorp earnings (K1) significantly enough that my W-2 to myself (plus K1 profit) is below the maximum for qualifying for Roth IRA, could I just directly contribute into a Roth IRA without needing to do conversions?
Yes on Solo 401k, no on SEP-IRA due to the pro-rata rule.
Eligibility for direct Roth IRA contributions is determined by MAGI, which includes your S Corp distributions. Besides, if you’re making enough to max out an individual 401(k), you’re going to have to do your Roth IRA contributions indirectly/backdoor.
The Great Rollover Expedition….yes it has been a journey.
Now that the SE-401k accounts are set up and running smoothly, it came to pass that it was time to rollover the old employer 401k property into the new SE-401k. Let the games begin.
Without really having a roadmap to guide me, I pretty much did all things right, or nearly so. When things went wrong, and the really went wrong, I discussed the matter with an SEC agent who directed me to a document, “https://www.sec.gov/reportspubs/investor-publications/investorpubsacctxferhtm.html” Very helpful. More about this later, but I do encourage everyone considering the type of transfer I used (i.e. an IN-KIND property transfer, rather than a check for cash, and then re-investing in new funds to read this an a couple of other SEC publications with additional information.
When I first learned about the solo 401k thanks to White Coat Investor, I developed a plan. First have a place to put present sporadic income from retirement gigs along the way. The research done, Etrade was selected as it had all the features to mimic my last real group’s 401k: traditional/Roth sub accounts, in-plan conversion abilities, low fees, and the ability to roll over my old plan into the new plan.
So, why did I decide to take a property rollover distribution instead of cash rollover? My old plan had several institutional funds with relatively low expenses, and had a number of Vanguard Admiral funds which are not open to new shareholders outside of Vanguard, so these provided me the opportunity to carry on with additional flexibility, and permitted me to not have to worry about market fluctuations between the time of the rollover request and the time the settled funds arrived in the new accounts. At least that was the plan.
So far, so good.
Precursor steps:
1. Query the new plan (Etrade) to see if they will accept an in-kind property transfer of funds/shares into the respective traditional/Roth subaccounts. Answer yes. The SEC bulletin lists this as a key step to make sure things go smoothly.
2. Query the old plan and read the SPD and Plan documents to see if they permit a property, rather than cash distribution.
3. Query the old plan custodian and the Plan administrator at the old employer to documents to initiate the rollover.
4. Have in place the new SE-401k traditional and SE401k Roth sub-accounts and be very sure they are operational!
Next Precursor steps: Verify the new house will accept all of the In-Kind securities to be transferred from the old house.
I specifically asked the rep for etrade if he could verify all of the funds I held in the old account (I have 8) would be accepted by the new house. The answer was an unqualified “Yes.”
I then verified with the old company that they could indeed execute the in-kind transfer as described in the old plan documents. Again the answer was yes.
Next precursor steps: Very important. Mistakes have happened! As in all things electronic, the Lord protects those who make backups of important data, and woe be unto those who do not. Back up your data! then back it up again and put the third backup you make in the safe deposit box along with the plan statements. This is what saved my retirement accounts.
For the curious here’s how I backed up and tracked data: I use postgresql, an opensource (free) database and build a table for all transactions from the old 401k. This way, I have a record from inception of how the balances came to be. I can then write sql queries to get the data out and review it. I loaded the database by using the old plan’s web site to download .csv transactions each month or so, and a simple python program (which I can share if anyone is interested) to load the database each month. This database matched the reported information from the old Plan custodian, as it should.
Next, I developed a “rollover” database table and pre-loaded it by hand from the old custodian web pages and compared the results with my transaction databases. They matched. So far so good. I also took screenshots of the web pages and printed them to have hardcopy documentation and kept those with the quarterly statements.
Now, I was ready to initiate the rollover: I sent the forms I had received to the new plan’s agent who reviewed them and pronounced them good. I then sent them to the old plan administrator for signature to be returned to me and then sent on to the new plan to execute the direct rollover. There is a fee with the old plan which I expressly asked to pay outside the plan. This instruction/request was not honored, and added a variable, but it was only fifty bucks so how big a deal? Just wait.
The execution began…and we waited…and waited…finally 3 weeks later, oh happy day I was informed by the new plan that the funds had arrived. I checked the accounts and yes there was a bunch of money in the two accounts where there had been not so much the day before. But wait! This balance was short in excess of nearly six figures? And look here…the Roth account was over by high five figures. Nice work if you can get it, but that money that was short went somewhere but certainly not to me. But as one plan will be sending a 1099R for the direct rollover and I must now do a form 5500 which will be out of balance, trouble lies ahead.
And where did the excess $50k (+/-) in the Roth come from ? Out of thin air. So, now we have an out of balance condition which, uncorrected will result in two tax liabilities: a distribution into thin air of the traditional plan, and a movement of money for which no tax has been paid into the Roth plan. This is bad indeed.
So, the parties and the plan administrator were informed in writing with the details (obtained from those backups, remember the backups). Over then next month, little by little, discussing the issues, providing copious and intricate details of each and every transaction the old plan since it’s inception, we found and corrected errors. Now, finally we are within 1.7% of where we should be, and I am very optimistic that the accounts will reconcile by next week’s end.
If anyone is interested, I can write a good essay on the mechanisms (ACATS and others) by which property (other than cash) is transferred between rollover accounts in these matters and how to direct the orchestra when what appears to be simple things are done wrong.
It took some work but I think the outcome will be worth it…no 401k house fees, preserved institutional funds with very low expense ratios, and additional flexibility for new funds added. Viva la SE-401k.
my employer has a john hancock retirement plan and just suddenly stopped matching 3% of salary in our 401k. should I rollover my 401k money into a solo 401k now through vanguard to get lower fees?
Does your employer’s 401(k) allow in-service rollovers? Probably not.
Do you also have self-employment income? Probably not.
You’d need both of those things to roll your 401(k) into an individual 401(k). You can’t just willy-nilly open one.
IRS regulations prohibit the non-hardship in-service withdrawal/rollover of employee elective contributions/non-vested employer contributions and attributable earnings prior to age 59 1/2.
IRS regulations allow but do not require the non-hardship in-service withdrawal/rollover of employee after-tax contributions/vested employer contributions and attributable earnings prior to age 59 1/2 provided they are supported by the plan.
IRS regulations allow the in-service withdrawal/rollover of previous rollover contributions and attributable earnings at any time..
If you are like most people < age 59 1/2, the vast majority or maybe all of your 401k balance is not distributable.
I am planning to open a Solo 401K for my S corp income total 400K.
already have 403 b plan and about 15 K contribution (9 K employee+6k employer), so I plan to do
Solo 401 employee 9.5 k as ROTH (18.5-9) and employer match 35.5k(55-18.5-6)
Question :
1.Which company would be best to open 401 to do all this- Roth and backdoor Roth
2.How do I make employee portion Roth contribution to solo 401 and whats the deadline
3. How much salary I need to take to make 35.5K as match?
4Whats the time sensitive step needs to be done this year?
TIA
1. You need a provider that allows Roth deferral. I don’t think Fidelity does. So look at E*TRADE and Schwab and Vanguard.
2. You can designate Roth vs pretax when you make the contribution. Your S Corp status makes things more complicated. You can only make deferral contributions with payroll, from funds not already received by the employee. So you can’t make contributions from salary you’ve already paid this year. Only with payroll remaining thru 12/31.
3. Profit sharing is limited to 25% of compensation (salary). So to contribute $35.5k profit sharing you would have to pay 35.5 / 0.25 = $142k salary.
4. Solo k needs to be open by 12-31 to make 2018 contributions. Salary deferral needs to occur with payroll. Profit sharing contribution deadline is S Corp filing deadline including extensions.
How can I make backdoor ROTH of 5.5k?
I already have a ROTH IRA and solo 401 K pretax and 401 kROTH
Thanks!
Have you made no IRA contributions in 2018? Assuming no, do the following:
1. Open a traditional IRA account at same brokerage as your Roth IRA.
2. Make nondeductible contribution to traditional IRA.
3. Next day convert the contribution to Roth IRA.
4. Only do this now if you have no pretax dollars already in traditional, SEP, and SIMPLE IRAs. Is that the case?
Pay close attention to #4. If you have any pre-existing pre-tax funds from any year (not just 2018) in any IRA, you will have to pay tax on the percentage (ratio) of pre-tax funds in the IRA when you convert. For example, you (and your spouse, if applicable) have an IRA (or several IRAs–you have to add them all into one pool) from years/decades ago with $1,000 in it and you want to back door $5,000 this year. You deposit post-tax, $5000 in a new IRA, you now have a total of $6000 in the IRA “pool.”
You then take your post-tax $5000 and roll it over to the backdoor Roth IRA.
Your pre-tax post-tax ratio is 1000/6000 = 0.1667 The IRS does not permit you to say, I put $5000 in after I paid tax on it and I’m going to take that $5000 out now. Instead it says, you have a mix of pre and post tax funds which cannot be unmixed. You will have .1667*5000 = $833 in taxable income from this transaction.
Conversely, if you have $0 pre-tax money in all of your prior IRAs, then the ratio is $0/$5000 = 0.00 and you will not have taxable income from the transaction provided you file the right paperwork with your returns. At least one of the tax programs will no do these forms correctly, but I think White Coat Investor has the proper method posted on this website somewhere. If not, let me know and I can show you what I’ve done.
I was fortunate in that i ignored the financial advice of a paid financial advisor who wanted my wife to roll over her 401k into an IRA, which she refused. Had that happened, the back-door IRA path would have been forever closed to us due to this tax rule. Good luck.
I seem to have found a new unfortunate glitch with a Vanguard i401k.
It doesn’t seem you can buy investor shares of their index mutual funds anymore (it says they are closed to new investors).
And since Admiral shares are not an option in the i401k, the options are very limited.
In my other accounts (Roth IRA’s for myself and spouse, taxable account) I’ve split up my investments into VG Total Stock, Total International Stock, Total Bond and a small percentage in REIT index funds. I’d like to continue using the same funds and all other accounts are held at Vanguard; would it be reasonable to use a target retirement fund (ER 0.15%) with a similar desired asset allocation in my i401k at Vanguard?
I already have a small i401k account there and am not sure I can justify the hassle of rolling it over/opening another account at a separate institution (and as I did not do so before the end of 2018, any contributions for 2018 will have to go to my Vanguard i401k).
If not, I’m not sure which funds would most closely align with my simple investment strategy that are available in a VG i401k.
Thoughts? Thanks in advance
Update- you can now get Admiral Shares in VG i401k (as of Dec 2018). You have to call but they will add them to your account to purchase.
I’m 2.5 years out of residency and currently have a SEP-IRA at Vanguard. I was planning on transitioning those funds to an i401(k) this year so I can begin contributing to personal and spousal back-door Roth IRAs, and now that Vanguard has started allowing purchase of admiral shares through their i401(k)s, I’d like to set up my i401(k) with them. They don’t currently allow for IRA rollovers into their i401(k)s; would it be worth it to move the money elsewhere and then bring it back to a Vanguard i401(k)? If it makes any difference, I may not actually contribute to the Roth IRAs this year as I’m focusing on finishing off my loans and then will transition to saving for a down payment on a home. Thanks for the help!
Well, you certainly can’t start there. You’ll have to go to Fidelity or eTrade. Whether you want to come back or not is dealer’s choice. Vanguard does take 401(k) rollovers.
You have until April 2020 to make your 2019 IRA contributions.
You can’t just move a one-participant 401k plan from one provider to another. You must amend the plan to the new provider and then transfer the assets.
You can move from Vanguard’s i401k plan to Fidelity’s SE401k plan by using Fidelity’s adoption agreement to amend the plan and transfer the assets.
You can do the reverse using Vanguard’s adoption agreement and transferring the assets. Vanguard does not allow rollovers, but they do accept trustee -> trustee transfers pursuant to an amended i401k adoption agreement.
While this is possible, I wouldn’t be doing it twice in succession. The first is absolutely necessary to do what you want. The second is not.
Another option would be to pay some of the boutique i401k companies (mysolo401k, discountsolo401k, etc) and they will generate a custom plan document for you. I believe that includes amending the document to accept incoming rollovers. It is pricey but perhaps less hassle than shuffling back and forth, something to add to your list of options. If I were in your shoes I would look hard at Etrade’s no commission no fees list, their mutual funds include nearly all the vanguard funds I would want to invest in for admiral shares that you can purchase at no cost. While I like Fidelity from my experience using them in residency, I don’t particularly love their fund selection.
Update is that there are now Admiral options for index funds at Vanguard. At least, according to their website.
That’s correct.
2 brief questions:
quick background: physician, single owner/no employee LLC company (no other employment or personal income) – I have an TIRA at vanguard with $30K in it. I want to open a solo 401K – rollover the IRA $ and then begin to do backdoor Roth IRA at vanguard (since almost all of my retirement accounts and my spouse’s retirement accounts are all vanguard already)
1) solo 401k at fidelity or etrade? — i dont need to take out a loan, i DO need rollover option (as above) and I currently have my HSA at fidelity. Lower/no fees at fidelity but less investment options vs more options and slightly higher fees at E-trade? I plan to stick with my 3-4 asset class investments anyway (US index, international index, bond index, +/- small cap index). Am I missing any other important considerations before choosing Fidelity over E-trade?
2) rollover the TIRA into the account – I will have to pay tax on that amount yes? (since that TIRA consists of some previously contributed $ that was rolled over into that TIRA from my previous employment 401k (now closed). The remainder of the TIRA contributions were post-tax due to income (married filing jointly). Missing something here?
Thanks!
1. No, I think Fidelity is fine.
2. A rollover of a traditional IRA into a 401(k) is not a taxable event. A Roth conversion of a traditional IRA to a Roth IRA is, at least on tax-deferred dollars.
Thanks
1) great
2) even though the TIRA contributions were post-tax dollars (due to income not allowing for pre-tax dollar contribution)?
Thus, isn’t that conversion ‘post-tax’ – aside from whatever capital gains might have incurred since the time of the TIRA 2019 contributions?
2) There is no tax bill on conversion of post tax dollars. Gains are taxable upon conversion.
You can only rollover pre-tax IRA balances to a one-participant 401k. The 401k plan is prohibited from accepting non-deductible IRA basis.
The way to compute this is take the entire IRA balance and subtract the non-deductible basis, the result is the pre-tax balance.
Roll the pre-tax balance into the one-participant 401k. This is a non-taxable rollover.
Do a Roth conversion of the IRA balance. There should be little to no tax liability.
Hm… so if I understand this correctly, out of the $30K I have in the TIRA at the moment, since about $25k is non-deductible tax contributions and $5K is pre-tax contributions, I can only:
1) rollover the $5k into the 401k
2) the $25K I would have to rollover into the Roth IRA
3) 2019 contributions to TIRA (non-tax decutible) ‘convert’ into the ROTH IRA
Problem… Vanguard Roth IRA does not accept rollovers. ugh! I guess I need to consider opening the Roth IRA at Fidelity – which I believe accepts rollovers, as that is where I opened the solo 401K as well – to allow for the above-stated anticipated rollover ($5K).
Am I correct here?
Thanks!
$5K pre-tax and $25K after-tax? I’d just convert the whole thing for simplicity’s sake and pay the tax bill on that $5K.
You mean rollover the whole thing into the Roth IRA?
If yes, then I presume can’t do that at vanguard, only at Fidelity’s Roth IRA or E-trade Roth IRA? (I’m sure there are others but I prefer Vanguard and Fidelity due to having most of my other accounts there already)
Thanks
Sure you can do it at Vanguard. The only thing you can’t do at Vanguard is roll an IRA into a solo 401(k).
So, I have a new question.
My old employer’s 401(k) had a traditional and an in-plan transfer feature which permitted me to move funds from the pre-tax account to the Roth-401(k) account. I did this after I retired for two years, moving optimum amounts from the pre-tax to the Roth-401(k). The taxes were paid on this distribution with my normal 1040 using the 1099-R which correctly showed the in-plan transfer with the correct amounts as taxable in the tax year the in-plan transfers took place. For example, in TX # 1, I moved $30,000 from the pre-tax to the Roth-401(k) account and paid taxes on the $30,000. Repeat the next year.
In my post-retirement life, I created a single member LLC and established an SE-401(k) with both traditional and Roth sub-accounts. Initially my new gig fully funded the traditional SE-401(k) sub-account with the Roth account zero.
At this point I had two 401(k)s, the old employer’s with funds in both pre-tax and Roth sub-accounts and the new SE401(k) with funds in the pre-tax sub-account but $0.00 in the Roth side (as I messed up and got into a high tax bracket again).
Last fall, I initiated a direct rollover from my old employer’s 401(k) to the new SE-401(k) using an in-kind property transfer in the direct rollover, like for like (ie trad-401(k) to trad-401(k) sub account and Roth 401(k) to Roth 401(k) sub account).
As I understood this, this should have been a direct rollover and once all was settled, there would be no tax liability as there was no distribution, but was a trustee to trustee transfer.
The old employer’s Agent/Trustee made many mistakes in the rollover (wrong securities, wrong numbers of securities, co-mingling of 401k traditional and Roth sides, all of which they managed to correct after over 2 months of nightmares.
As of mid-December, all of the fund in both accounts were balanced and correct and audited.
So, I need to file a Form 5500EZ and do my income taxes for TY 2018.
As was expected, the old firm sending the direct rollover property filled out a couple of 1099-Rs. One for the traditional sub-account rolled over and the other These were correct with the correct amounts in Box 1 (total distribution) and $0.00 in box 2.a. (taxable distribution). Except they misspelled my name and blocked out my SSN on the 1099-R so I could not confirm anything, other than the dollar amounts which were correct. The IRS had no record of the 1099Rs attached to my tax account so they asked me to tell the old Trustee to correct the names on the 1099Rs and go ahead and file my taxes and pay the bill, which I did.
The old trustee didn’t just merely correct my name, they changed the Roth 1099R, this time including the gains as a “taxable amount in box 2.a and making an entry for the original amount transferred in box 5. and reissued this in both names, the incorrectly spelled and the correctly spelled.
I did not receive any distribution of any kind whatsoever, and they charged big fees to do the direct rollover.
It is my understanding that a DIRECT ROLLOVER is a non-taxable event. Have I got this straight? I haven’t spent money yet on my tax attorney. According to my read of IRS Pub i1099-R there should be no entry in box 2.a in a direct rollover.
I am well below the age of RMD, so that is not an issue either.
Any ideas?
Yes, that’s correct that there should be no tax due. Keep being the squeaky wheel until they fix their screw ups.
I am not quite a year out of residency looking to open up my i401k. I have the money to fully fund it sitting in a savings account, but I’m bouncing around on where to open. My Roth IRA (Backdoor) is at Vanguard and fully funded for 2019 already. Also already fully funded my HSA for 2019. I have been funding a Roth IRA at Vanguard for the last 3 years. No kids yet. $290k in student loans I have already refinanced to a 5year fixed term at 3.25%. Once the loans are paid off I might start looking at other investment options to bring down taxable income.
As this article was written 5 years ago would you still recommend Etrade if you were opening now? Or would you stay at Vanguard as they are now offering admiral shares for the i401k? Not really planning on taking a loan from it and only other retirement account is the Roth-IRA at Vanguard.
I’m actually at mysolo401k right now, which holds assets at Fidelity. But Vanguard worked just fine for me for years until I needed a feature they don’t offer in their off-the-shelf product, the Mega Backdoor Roth IRA. But if I didn’t need that since the new tax law passed, I’d still be at Vanguard. Most docs aren’t in my situation so Vanguard probably still works for them.
Eric,
I would have preferred to stay at Vanguard and not open the E*trade account. I also looked at Fidelity and a roll your own (ie checkbook) plan. I liked the checkbook plan because it gave me the most flexibility but also the most hassle and expense, so I went with one of the canned ones.
My needs were as follows:
1. traditional 401(k) (pretax) for me.
2. spousal traditional 401(k) (pretax) for my spouse/employee.
3. Roth 401(k) sub-account for the both of us.
4. In-plan Roth conversions –> convert pre-tax 401(k) to Roth 401(k) with the ability to pay the tax due outside the plan funds.
— say I have $100,000 in pre-tax and I am in a low tax bracket for a year, I would want to convert say $60,000 and pay the tax outside the plan. This reduces my future RMD and gives me more control over my retirement taxable income down the road with the idea that i would retire, live off cash (post tax savings & liquid assets) for a year or two and convert between retirement age and 70.
5. Loan provision that doesn’t cost a lot.
–gives me the option of borrowing from it. Not that I would need to do this, but it gives a little flexibility in taking a distribution as a loan balance write off. I haven’t explored this area yet, but if it doesn’t cost anything,…
And the sine qua non:
6. The ability to roll over my old employer’s 401(k) which has both Roth and traditional components as I have used the in-plan conversion feature to my advantage.
Of the majors with canned features (Etrade, Vanguard, Fidelity, Schwab), Etrade was the only one that met all of my criteria. I did this analysis about a year ago and while there are nit picks I have with etrade, I also have accounts with VG, FID and Schwab. so I can usually find what I am looking for. Etrade added a a whole slew of VG no tran fee funds, but does not allow Admiral funds to be directly purchased. I solved this by rolling over my old 401(k) as an in-kind property transfer and not as a Cash out and re-investment.
This gave me my old employer’s admiral/institutional funds in my new 401(k) account. I can’t buy more of them, but I can reinvest the dividends, which for now is just fine with me.
Hope this is helpful.
I admit I did not read all of the comments so forgive me if this has been addressed. I am EM with a “day job” at a city owned hospital. We have a 457b but not a 401k. I also do locums and am going to set up a solo 401k (likely through Rocket so as to be able to use those $ in syndications). My question is this:
Since I do not have a 401k through my employer, am I able to contribute 19k to my solo 401k, regardless of my annual 1099 income? I’ve looked through the IRS website and found one page that seemed to support that money contributed to a 457b is considered separately from other retirement contributions. Of course I can’t find that page again. Do you know?
Thanks!
Assuming there is no 403b in this picture, yes, you can contribute your first $19K you make in 1099 income into the solo 401(k). You are correct that the 457 limit and the 401(k)/403(b) limits are totally separate.
That is fabulous news. 🙂
Thanks for being a great resource!
JB
if I am thinking about setting up a solo401k at vanguard now that they have the admiral shares
I have a small amount of money in a traditional IRA in betterment from when I was a medical resident but I do not think I will be doing a backdoor Roth this year, so no need to roll over anything
what would be the best way to go about handling the IRA money next year if I wanted to do a backdoor Roth?
would it just be better to avoid vanguard altogether for this reason ?
thanks for all the help
If it’s just a small IRA why not just convert it?
If you don’t need the rollover function, you can still use Vanguard.
I’ve only been putting 100/month since I created the account as a resident ; and those contributions have been tax deductible
so this year I’ve put 700$ (was going to max out next month)
so how would this work ?
Just finish maxing betterment traditional IRA out and then convert to vanguard Roth IRA ? or convert it to a vanguard traditional IRA ?
if I do the former then doesn’t that mean that my contributions for this year won’t be tax deductible, and I’ll have to pay taxes on that 6K ?
sorry , trying to follow you , just new to personal finance stuff here
If you’re an attending and have a solo 401(k), your traditional IRA contributions aren’t deductible. So no deduction and no cost for your backdoor Roth conversion, although you’ll have to pay to convert any pre-tax money in there from residency (when you should have done Roth instead).
ah ok, didn’t realize that the traditional IRA ones were not deductible in that case.
if at high income levels with a solo401k traditional IRA contributions aren’t tax deductible then is the reason that high income earners do a backdoor Roth instead of keeping their IRA as a traditional is so that they are not taxed on it when they withdraw ?
because otherwise keeping their traditional ira, they would both be 1) not tax deductible and 2) would be taxed on withdrawal, kind of getting “hit” twice, so to speak ?
the amount I have in the traditional IRA is about $4700 only (I started it sometime during PGY2 and only have been giving 100$/mo)
what do you think the amount I’d have to pay for the Roth conversion would be, roughly ?
Thanks again for all the help !
If you don’t have a retirement plan at work you can deduct traditional IRA contributions at any income.